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‘Troubling Trend’ at Google, Despite Stock Surge: Analyst

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Source: Google
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Google shares hit a fresh all-time high on Tuesday, briefly catapulting the company into Apple’s territory as one of the most valuable companies on the planet.

However, one analyst sees a “troubling long-term trend” for the search giant.

Colin Gillis, a tech analyst at BGC Partners, told CNBC that Google’s declining advertising cost per click continues to be an issue for the company. Gillis has a $625 price target and a “hold” rating on Google shares.

Yet in the same “Squawk on the Street” interview, Ben Schachter, an Internet analyst with the Macquarie Group, countered this argument, saying the cost-per-click issue is “completely overblown.” Overall advertising revenue is what matters rather than the cost per click, Schachter said.

According to Gillis, Google faces the same mobile issue that Facebook does, as consumers increasingly browse the Web through their mobile devices. This revenue stream is closely scrutinized by analysts as a key source of how financially viable technology companies can be in the long-run.

"These mobile clicks are less effective and [Google is] monetizing less than the wired Internet," Gillis said. "It may be solvable, but it’s certainly not being solved right now,”

Gillis also sees “serious margin erosion” at the search giant as expenses rise.

“They keep growing their expenses faster than their top line,” Gillis said. “For a company of this size, I find that a little bit disturbing.”

Google’s ascent to the number two spot behind Apple in tech market cap on Tuesday follows a recent escalation of the rivalry between the two tech giants.

Apple recently replaced Google Maps with its own maps system on its latest operating system, iOS6. The switch — a rare misstep by a company that can do no wrong in the eyes of investors — drew complaints from customers, who were disappointed with the application’s accuracy. The bad press prompted a rare apology from Apple CEO Tim Cook.

“I think you’re going to see Apple continuing to move further and further away from Google as Google continues to really be a direct competitor on the hardware, on the software, on the ecosystem, on everything,” Schachter said.

—By CNBC.com's Katie Little; Follow Her on Twitter @katie_little

Additional News: Apple Removes Claim Maps Are ‘Most Beautiful, Powerful’

Additional Views: You Want to Own Apple Stock: Pro

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Disclosures:

Neither Ben Schachter nor Colin Gillis own shares of Google.

Disclaimer

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