Why Oppenheimer Sees Google Accelerating

YouTube usage is accelerating, growing at the fastest pace in over two years. New ad products will compete directly with Facebook Inc. (NASDAQ: FB) app-install ads and “Custom Audiences.”

Concerns over ad-blocking are less an issue for Google, at least in the near-term. Oppenheimer believes so for a few reasons: Google controls Chrome and Android, ability to pay for white-listing and budgets shifting from display to search are more profitable. While DoubleClick and YouTube could face headwinds, the firm believes less-intrusive, high-quality ads (TrueView, PLAs) will become an industry standard.

The firm also believes that search is likely to remain the majority of global Internet ad spend through 2018. Its analysis represents a preliminary view on segment details, and it looks forward to increased disclosure in early 2016.

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Time spent on YouTube accelerated in the second quarter, and it is up over 60% year over year, the fastest rate seen in two years. In addition, YouTube has over a billion users, a figure comparable to Facebook’s 1.5 billion month active users. As such, the firm believes six-times revenue, a slight discount to Facebook’s seven-times, is warranted.

In late September, Google announced two new ad products: Customer Match and Universal App Campaigns. Akin to Facebook’s Custom Audiences, Customer Match allows advertisers to upload email addresses, which can be matched to users on Search, YouTube and Gmail. Universal App Campaigns allows developers to deliver install ads, similar to Facebook’s App Install Ads.

Oppenheimer detailed in its report:

While desktop search is losing share to emerging formats (video, mobile, etc.), total search will still represent the majority of Internet ad spend in the U.S. (45%) and internationally (47%). Mobile search is growing at a ’13-’18 compound annual growth rate (CAGR) of 34% in the U.S. and 36% internationally.

Shares of Google were down 1.3% at $603.45 Friday morning. The stock has a consensus analyst price target of $645.00 and a 52-week trading range of $486.23 to $678.64.

Facebook shares were down 0.7%, at $90.29 in its 52-week trading range of $70.32 to $99.24. The consensus price target is $111.71.

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