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Analyst Defriends Google on Facebook Competition

The era of Google’s dominance in search advertising may be over as social networking site Facebook becomes the portal for web users to access other web sites, an analyst said today.

“Google is making the vast majority of its revenue on a pay-per-click basis to drive traffic to web sites,” wrote Wedbush analyst Lou Kerner, in a note to clients. “Given its huge base of over 500 million members, the majority of which log on every day, Facebook is already driving more traffic to some leading web sites and it is poised to dramatically grow its share of traffic generation just based on clicks from user news feeds.”

Google shares are down 21 percent this year, underperforming long-time competitor Yahoo, which is down 17 percent. Yahoo was downgraded to ‘hold’ today by BGC Financial analyst Colin Gillis, who cited flat display advertising in June.

Kerner initiated Google with an ‘underperform,’ making him just the second analyst to put a ‘sell’ on the stock. The average price target for Google among analysts is $626, while Kerner’s values the search leader at just $525.

Facebook’s attempt at directing traffic is really just in its infancy, driven by users clicking on links in their friend’s newsfeeds. Based pretty much on that alone, Facebook is already driving more users to YouTube and Twitter than Google and is closing fast on the search giant in redirections to sites such as ESPN and GroupOn, according to clickstream data from Alexa.com.

Investment bankers have been chomping at the bit for a Facebook initial public offering for a long time now, but Bloomberg News reported earlier this year that founder Mark Zuckerberg may wait as far off as 2012 before taking the company public.

Currently, Facebook is valued at $25 bln, according to Sharespost.com, a trading web site that calculates values for private firms based on a combination of transaction prices from the site, research estimates and recent venture capital financing.

Google is trying to buy its way back into the social networking game. It purchased social payment platform Jambool and social gaming site Slide this month. Google’s market value at the present time is about $157 billion.

Facebook “was mentioned only once on Google’s recent second quarter conference call,” said Kerner. “The Facebook threat is broadly underappreciated by the Street.”

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