Google Inc. (GOOGL) was recently downgraded by Atlantic Equities, a U.S.-based equity research firm from Overweight to Neutral. In addition, Atlantic Equities’ analysts decreased the price target on the stock to $560.00 (from $692.00).
The downgrade comes close on the heels of Stifel’s downgrade of the stock from Positive to Hold on Jan 8. Stifel also removed its previous target price on the stock of $610 per share.
Atlantic Equities revised the rating based on signs of weaker monetization from Google’s search business primarily because of the persistent shift in user’s preference toward mobile content. The firm believes that Google’s core business is maturing, so there’s little room left for growth there.
The firm also observed that the search giant is putting in continued efforts to explore growth outside search. But the efforts are not fetching desired results as it is looking for growth in lower-margin businesses including YouTube and Google Play. The firm asserts that traffic on YouTube cannot offset the headwinds in the competitive search business.
The downgrade also follows the recent data issued by analytics firm Statcounter, which revealed that Yahoo had delivered its largest share gain in December since 2009. On the other hand, Google’s share of the U.S. search market fell to the lowest monthly level since 2008.
Google’s share of the U.S. search market, excluding mobile devices, slipped to 75.2% in December from 79.3% a year ago and from 77.5% in November. Yahoo’s share rose to 10.4% from 7.4% a year ago and from 8.6% in November. Microsoft’s (MSFT) Bing was in the second-place with 12.5% share from 12.1% in November.
Stifel had cited similar reasons for the rating it assigned. In addition, Stifel analyst Scott Devitt said that Google will face intense competition as it further widens into vertical search categories such as travel, local, and e-commerce. Moreover, Facebook's (FB) increasing share in the digital advertising space poses a risk for the search giant.
But there is still some upside left for Google’s stock. Out of the 15 analysts who cover the stock rate, 12 rated it a Buy while only three assigned a Hold rating. The average 12-month target price on the stock is $664.
With the changing competitive landscape, Google needs to be more cautious and cannot afford to miss any opportunity to maintain its lead in the search and advertising market with competitors doing their best to pick up market share. Long-time partner Apple Inc. (AAPL) is also expected to change the default search option on its Safari browser to Microsoft’s Bing, which is standard on the iPhone and iPad. With Yahoo and Microsoft trying to grab as much share as they can, the potential loss of the Apple deal can further hurt Google’s market share.
Google shares hold a Zacks Rank #4 (Sell)
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