It may seem that Facebook (NASDAQ: FB) and Google (NASDAQ: GOOGL) serve completely different purposes, but what happens when the two omnipresent sites compete with each other? This future may not be far off as Facebook revamped its search bar, allowing users to search old posts. After all, Facebook CEO Mark Zuckerberg once said that his goal is to “build the perfect personalized newspaper for every person in the world.” Furthermore, Google has tried to break into the social media sector with Google+, though its membership is dwarfed in comparison to that of Facebook.
Facebook’s third quarter report had some investors worried about slowed growth due to Facebook falling out of favor among its younger demographic. However, innovations to Facebook such as the new search bar are instilling a new sense of excitement among users. Facebook has even more to be excited about because an analysis of Internet use from comScore showed that Facebook accounted for 21% of time spent on the Internet.
Analyst Doug Anmuth of J.P. Morgan is assured that Facebook is in the front of the pack. On December 16th, Anmuth maintained an Outperform rating with an $85 price target. In regards to the comScore report, Anmuth noted that Internet users spend more than “8.5x the minutes” on Facebook than they spend on “competitive services.” Anmuth voiced his long-term confidence in Facebook, boasting its “virtual ownership of the social graph, strong competitive moat, and focus on the user experience.” These factors will “significantly improve monetization over time” and Facebook will “become an enduring, blue-chip company built for the long term.”
Anmuth believes that Facebook still has growth potential, especially with the advertisements being integrated into the new News Feed. Facebook also owns Instagram, a photo sharing social networking application, which is in the process of rolling out its advertising campaign. Instagram has 300 million monthly active users, but the application is slowly testing out advertising methods to avoid alienating users. Once Instagram begins regular advertising, J.P. Morgan anticipates it will bring $168 million in revenue in 2015 and more than double that in 2016.
Anmuth has rated Facebook 32 times since June 2013. He has an 84% success rate recommending the social media site with a +62% average return per Facebook recommendation.
While some think that Facebook’s new search bar will drive traffic away from Google, Anmuth reiterated an Overweight rating for Google but cut his price target from $670 to $600. Anmuth explained his price cut, anticipating “slower organic growth” for the omnipresent website. He also attributed the price cut to “the transition from desktop to mobile search, continued margin compression, and increasing competition from Facebook.” However, Anmuth believes that Google will continue to benefit from the increasing presence of online advertising.
Anmuth has rated Google 24 times since May 2010. He has a 79% overall success rate recommending the site with a +44.9% average return per Google recommendation. Overall, Anmuth’s past recommendations have earned him an 84% overall success rate recommending stocks with an average return of +24.2% per recommendation.
Facebook and Google have become cornerstones of the Internet and social media. An increase in competition between the two is sure to drive innovation, but will both stocks continue to produce gains?