Google gains billions in value as YouTube drives ad growth
Google Inc's shares soared as much as 16.8 per cent on Friday, crossing the $700 mark and adding nearly $68 billion to its market value, as strong growth in YouTube viewership allayed concerns about Facebook Inc's push into video. The stock's surge, which sent the Nasdaq composite index to a record intraday high, came a day after Google reported better-than-expected profit for the first time in six quarters. The rise in the Web search giant's market value was more than the total market capitalisation of Caterpillar Inc , the world's biggest construction equipment maker.
Google's shares hit a record high of $703, valuing the company at $471.50 billion and cementing its position as the world's second most valuable company after Apple Inc. At least 27 brokerages raised their price targets on Google's stock by as much as $150 to as high as $800, with analysts also welcoming new Chief Financial Officer Ruth Porat's emphasis on disciplined spending. At the highest price target, Google would be valued at $545 billion. Apple is valued at about $740 billion.
The energy brought to Google by Porat, who joined in May from investment bank Morgan Stanley, is likely to drive the stock in the short and medium term, analysts say. "She is known to be tough as nails when it comes to expense management ..." FBN Securities analyst Shebly Seyrafi told Reuters. "A lot of investors are comforted by the fact that her first quarter as CFO, reporting, she is delivering."
Google said on Thursday that watch time for YouTube rose 60 per cent in the second quarter and the video service had more viewers aged 18-49 on mobile alone than any U.S. cable network. Online video ads could be a $17 billion opportunity in the United States alone by 2017, Jefferies & Co analysts wrote in a note, and YouTube looks best positioned to benefit. Google and Facebook are trying to woo big companies to market their products via online videos.
But YouTube has an edge over Facebook as it has a more mature monetization platform that seems to attract the best content, Piper Jaffray analyst Gene Munster said. Google's advertising revenue rose 11 per cent to $16.02 billion in the second quarter. The number of paid clicks increased 18 per cent. "This growth has steadily held in the mid-to-high teens since at least Q1:13," RBC analyst Mark Mahaney said. "Such consistency is a rarity, especially for a behemoth business..." Google said the gap was closing between mobile and desktop "cost per click" (CPC), or the average price of online ads. Mobile ads are usually cheaper than desktop ads because of smaller screen space.
Mobile CPCs are likely to exceed desktop CPCs in the long term, Munster said. Google's CPCs fell 11 per cent in the quarter, pressured by YouTube TrueView ads - lower priced ads for which advertisers pay only when viewers don't skip an ad. Google's intrinsic value is $443.23 per share, according to Thomson Reuters StarMine calculations based on analysts' earnings estimates over 10 years.
Of 48 analysts covering the stock, 38 have "buy" or higher rating, while 10 have "hold." The median price target is $672, according to Thomson Reuters data. Google's shares were up 15.7 per cent at $696.09 in afternoon trading on the Nasdaq. Facebook's shares were up 4 per cent at $94.61, reacting to Google's ad revenue growth. Up to Thursday's close, Google shares had risen about 13 per cent this year. The stock trades at 19.7 times forward earnings, while Facebook trades at 38.1 times.