Investors should give Google a wide berth while it sorts out its long-term strategy, say analysts.
MOUNTAIN VIEW, Calif. (TheStreet) -Google(:GOOG) shares have lost 6% over the past twelve months as the company wrestles with its long-term growth strategy, particularly in mobile. Set against this backdrop, investors may want to stay away from the bellwether for the time being, analysts say.
The Internet giant posted below-consensus fourth-quarter earnings after market close on Thursday, prompting yet more questions about its search for new revenue.
Although Google boasts multiple Internet services, there are plenty of places where it's playing catch up. The tech giant, for example, lags behind the likes of Facebook and Twitter in social networking, and trails way behind Apple's(:iTunes) in online music.
Mobile is another area where Google has work to do, according to BGC Partners analyst Collin Gillis, noting that it's not a material revenue driver for the firm. "Mobile will have to be monetized in a different way than customary desktop search, and Google is trying to do that by capturing the entire experience, with things like Google Wallet and other initiatives," explained the analyst, who downgraded Google from buy to hold.
This, however, could be some way off.
Wells Fargo analyst Jason Maynard said in a research report that mobile usage is approximately two years ahead of mobile advertising. He rates Google shares at market perform with a $620 to $640 price range.
Mobile advertising trends are expected to rise in the future, but analysts were shocked that Google's cost-per-click (CPCs), money paid for each click on an ad, did not rise this quarter. "The big negative surprise in CPC came as that figure was down 8% year-over-year versus our estimate of up 8%," Maynard wrote in his report.
Google did not give a blended revenue run rate on CPCs, which suggests that mobile advertising may have a lower revenue run rate for now.
Speaking during a conference call late on Thursday, Google's chief business officer Nikesh Arora said that mobile usage is growing "leaps and bounds", led by smartphones and tablets. Google CEO Larry Page added there are now over 250 million activated Android devices, and said the holiday shopping season helped increase mobile usage, as consumers increasingly searched for products to buy.
The CEO also cited mobile display, mobile search and apps as being the primary revenue drivers for mobile. 11 billion apps have been downloaded so far from the Android Market, according to Google.
Google, of course, also plans to ramp up its mobile efforts through its $12.5 billion purchase of Motorola Mobility(:MMI), expected to close later this year.
BGC Partners' Gillis said investors may want to be on the sidelines until the second half of 2012.
"The stock is seasonally stronger in the second half, and the pending Motorola Mobility(:MMI) acquisition leaves it dead money until the summer time," Gillis said over the phone.
When asked if the Google + social media effort was a bust, though, Gillis said Google needs the customer data that comes out of Google +. The social networking initiative now has 90 million users, more than double from the previous quarter, according to Google.
Speaking during the company's quarterly conference call, Google CEO Larry Page said that 60% of G+ users sign in daily, and 80% sign in weekly, but acknowledged that the service is in the early stages of monetization.
Regulatory concerns may also be an issue going forward, however, with Gillis noting that Google appears to be favoring its own properties with its new search initiative, Search Plus Your World, instead of Twitter and Facebook. That could lead to regulatory problems down the road, he warned.
Google shares closed down $53.37, or 8.38%, at $586 on Friday.
Interested in more on Google? See TheStreet Ratings' report card for this stock.
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--Written by Chris Ciaccia in New York
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