Citigroup Reiterating Buy On Google Based on Broad Industry Datapoints

The firm maintains their $450 price target believing that two recent Search conferences reinforces their bullish view on Google.

From Analyst Mark Mahaney:
Two Key Industry Conferences In The Past Week - SMX Search Expo in Santa Clara, CA and Covario Search Conference in San Diego, CA (see 2/8/09 note). Combined, these provide broad reads into Search marketing trends.

SMX Takeaways Consistent With Covario Summit Learnings - 1) '09 Search budgets are broadly - tho not universally - expected to increase over '08 levels; & 2) Q1 Search, however, WILL be weak, with the Retail & Travel segments (not surprisingly) seeing weakness but the Financial segment (surprisingly) seeing stabilization, with select signs of February picking up from weak January.

Findings From Authoritative SEMPO Report Suggest Search Stabilization - Released at the SMX conference, the Search industry survey report concludes that 1) Search marketers are looking for approx 9% spend growth in '09, which is ahead of our GOOG 4% U.S. growth forecast; 2) 2/3rds of Search Marketers could tolerate further price rises, although we view CPC deflation as much more likely near-term; and 3) Search budgets continue to be poached from Magazine, Direct Mail, and Newspaper budgets.

Findings From Advertiser Perceptions Survey Suggest GOOG Display Traction - The survey of over 1,200 online advertisers actually ranked GOOG higher than YHOO in terms of Display Ad Results and Customer Service and close to YHOO on several other Display metrics. YHOO's challenges/distractions over the past several years have created an opportunity for GOOG Display advertising. And there is evidence of some success.

Although Early, We Believe Competitor Checks Suggest Support For Our Q1 Ests - With GOOG, we are assuming 7% Q/Q net revenue decline in Q1 vs. the 7% and 10% declines we see implied in YHOO and IACI's Ask guidance. Given the above datapoints and GOOG's ongoing market share gains, our estimate would appear to safely include a worst case Q1 scenario.

Reiterate Buy As We View Risk-Reward As Very Reasonable - Our $21 in '09 non-GAAP EPS carries assumptions for modest Search growth, the beginnings of material non-Search revenue, and opex efficiencies that recent industry datapoints would appear to support. A close-to-trough 15X multiple would imply approx 10% downside ($315) while the average '07-'09 multiple (25X) would imply approx 40% upside.