Google to $1,000: The Redux (Update 1)

Updated from 9:56 a.m. EST to provide additional analyst comments in the 11th paragraph.

NEW YORK ( TheStreet) --It was only last month an analyst said Google ( GOOG) was going to hit $1,000 a share sooner or later. Now another one has joined the parade, as Wall Street becomes increasingly bullish on the search giant.

Jefferies analyst Brian Pitz raised his price target to $1,000 from $875, while reiterating a "buy" rating, based on e-commerce traction picking up, YouTube continuing to be the dominant player in video advertising and a belief that mobile cost-per-click will improve. Google shares have enjoyed a strong run this year, tacking on 16.1% year-to-date. The gains look to continue if Google is able to execute on its plan, Pitz notes.

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Google still generates the majority of its revenue from advertising, earning $10.65 per share on $11.3 billion in revenue during its fourth quarter. Analysts polled by Thomson Reuters expected Google to earn $10.49 a share on $12.3 billion in revenue in the quarter. Product listing ads continue to be high and Pitz believes that bodes well for Google in the long-run. A PLA is a search ad that includes additional information about the product, including images, pricing and merchant info, not just a blue link.

This comes as Google is set to launch a fee-based program for Google Shopping, very similar to Amazon ( AMZN) Prime, which should continue the momentum. "As with the US Google Shopping (GS) program (transitioned to 100% paid on Oct. 17), the new, fee-based program will essentially require retailers to buy Product Listing Ads (PLAs) or be omitted from the GS search results," Pitz wrote in his note.

When the U.S. Google Shopping program went to a paid service in October 2012, revenue from Google Web Sites re-accelerated from 15% year-over-year growth to 18% year-over-year growth. Pitz now expects that to be even better in 2013, showing growth of 20% year over year.

The growth of YouTube has been nothing short of phenomenal, since Google purchased the nascent Web site in 2006 for $1.65 billion in cash and stock. Bernstein analyst Carlos Kirjner called YouTube "an underappreciated asset" when raising his price target to $1,000 and Pitz is saying the same.

YouTube continues to be a star for Google, especially on mobile, where it recently released a new app for iOS, driving further views. On the fourth-quarter earnings call, Google said viewers are watching 4 billion hours of videos a month. That's translating to advertising revenue, with advertisers increasing their spend 50% from 2011 to 2012. The top 25 advertisers now spend over $150 million each per year on YouTube, helping Google's move to mobile.

Pitz noted that TrueView video ads (pre-roll ads before the video) are largely responsible for the growth of YouTube revenue, which he believes will grow 76% year-over-year to $4.5 billion. In comparison, Jefferies believes Netflix ( NFLX) will generate $4.3 billion in revenue this year.

Allowing the user to skip the ad after 5 seconds maintains the user experience and improves efficiency as it pertains to ad spending, Pitz wrote. "8 out of 10 viewers prefer TrueView to standard instream ads, and 9 out of 10 viewers think TrueView creates a better video viewing environment," Pitz wrote.

As consumers increasingly turn to mobile devices for their Internet needs, YouTube benefits, but Google's core business of advertising is hurt as it is much more difficult to advertise on mobile devices than it is on desktop. Facebook ( FB) had this problem earlier, but its recent results have started to show an uptick in mobile revenue and it seems as if Google is seeing the same. Pitz believes the pain to advertising revenue is likely to subside, as Google showed during its fourth-quarter results.

Wall Street is becoming increasingly bullish on Google as it relates to consumers and their computing needs. Piper Jaffray analyst Gene Munster wrote in a note he believes "Google is far and away the best positioned company" over the next 10 to 20 years in consumer technology. Google Glasses and driverless cars could provide huge opportunities for Google over the next decade, Munster noted. He rates Google "overweight" with a $938 price target.

Cost-per-click, a key metric for ads, fell 6% year over year for Google in the fourth quarter, but actually rose 2% sequentially, alleviating some of Wall Street's biggest concerns. The company doesn't break out mobile revenue from desktop revenue, but it's generally believed that mobile ads have been weighing on CPC results, driving down earnings.

On Feb. 6, Google announced it was upgrading AdWords with "enhanced campaigns." Pitz believes this will "make it easier for advertisers to target users on mobile devices, but they also lump tablets and desktop users into the same bucket, meaning advertisers pay the same rate to serve impressions to tablet and desktop users."

Google is trying to own the entire mobile experience, not just in advertising revenue and software with Android, but hardware as well. Google closed its Motorola acquisition last year and has released some new products, such as the Chromebook Pixel, as it takes on Apple ( AAPL) and to a lesser extent Amazon.

Google's Android operating system is part of a duopoly in mobile computing, along with Apple's iOS, and the company is working on making more of a "pure" experience for Android users, with its line of Nexus smartphones and tablets. There is also the rumored X Phone, which is thought to be Google's "iPhone killer."

Google is firing on all cylinders currently; years of research and development are starting to pay off. It almost seems that a share price of $1,000 is inevitable, as long as the company continues to execute on its plan.

-- Written by Chris Ciaccia in New York

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