Why Are Analysts Raising Google’s Price Targets?

Some stock analysts have high hopes for Google (NASDAQ:GOOG), or at least for its stock, as they raise their price targets by major jumps following earnings. Google’s advertising scheme might have something to do with the boost.

Google’s ads

One of Google’s key revenue sources is advertising — on its site, on sites it supports, all over web. And companies pay a good chunk of change for Google’s vast reach and massive audience. Advertising can make up as much as 97 percent of Google’s revenue. So, when the numbers around Google’s advertising change, analysts need to be thinking about how that will impact the company.

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The recent changes

One thing that shook people’s confidence was the lowered average cost-per-click compared to a year earlier, which tells how much Google is getting paid from advertisers. The average cost-per-click dropped 15 percent in the third quarter from a year earlier, and declined 6 percent in the fourth quarter from a year earlier…

Performing anyway

Despite reduced average cost-per-click, Google shares rose 15 percent in the last six months, and analysts expect them to keep performing. Google closed Tuesday at $702.87 a share, but JPMorgan and at least seven other brokerages expect that price to keep rising.

The share price was already up over $43 Wednesday morning after the company’s shares were set to open 5 percent higher that morning on the Nasdaq. The average raise in analysts’ price targets was $47, but JPMorgan raised theirs $58 to $860.

Some of the hopefulness comes from a shift in the way advertisers are thinking about advertisement clicks, as the medium is shifting from computers to mobiles, and companies see more and more potential in mobile — and Google having its own highly-popular mobile OS sure won’t hurt.

So, as advertisers grow more confident in Google’s advertising platforms, stock analysts can grow more confident in Google’s ability to pull in revenue — and Google did. In a show of might, Google pulled in $9.83 billion in new revenue for its core internet business, excluding traffic-acquisition, which makes for a $1.7 billion increase on the year before.

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