NEW YORK (TheStreet) -- Although Google (GOOG) - Get Report has extricated itself from the world's largest Internet market, China, and faces possible euro-zone headwinds, analysts are maintaining that investors should buy the stock.
Citi analyst Mark Mahaney on Monday added Google to his Citi conviction buy list, while providing a price target of $640. The analyst views Google stock, with its 24% correction year-to-date, and its current valuation, as "the most compelling risk-reward opportunity in the large cap internet sector today."
In an investor note dated May 23, Mahaney fought some of the common arguments against the stock: that Google's market share has flatlined;that its operating margin has peaked; that Google will face aggressive regulatory scrutiny going forward; and that Google's new revenue initiatives -- by way of the mobile, display and video spaces -- will be immaterial.
"We believe that Google's market-share gains will be limited going forward -- especially when compared with prior years; but ComScore's April PC search data ... actually suggests that
may be the flat-liner; and Google's very strong smart phone positioning is likely to boost, not reduce, its total search market share," Mahaney wrote.
Regarding concerns that Google's operating margin may have already peaked, the analyst argues that as a largely fixed-cost business, Google will continue to benefit from scale factors. He also notes that the company has adopted, over the past two years, much more rigorous discretionary operational expense controls. Furthermore, he argues, there is more operating leverage at Google than widely recognized.
Mahaney continues to believe that Google can exit 2010 with a $1 billion to $2 billion net revenue run rate from its display, mobile, and video segments, combined. Furthermore, non-UK international macro recovery and material contribution from Google's new revenue initiatives will, over the next one to three quarters, likely combine for a breakout quarter, the analyst noted.
"Will Google face aggressive regulatory scrutiny?" Mahaney asked. "Sure it will. As it has for some time. But the FTC did approve the AdMob deal," he pointed out.
MKM Partners' Tim Boyd, who has upgraded Google stock to buy with a $600 price target, says that regulators' approval of Google's acquisition of mobile advertising company
"removes a major sentiment overhang on the stock."
"Up until today, the consensus view has been that Google would not get approval on the deal -- we believe this was leading investors to believe that Google would not be allowed to expand into key, non-search businesses, thus hampering the long-term growth outlook for the overall company," Boyd noted. Boyd believes that the approval has removed negative sentiment overhang on Google stock.
These analysts believe that Google has gotten another round of ammunition conducive to its long-term growth; readers of
, in light of the recent Google news, how do you feel about the stock right now? Take the poll below to see what
has to say -- and feel free to leave your comments below, to tell the world what
have to say.
-- Reported by Andrea Tse in New York
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