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Investing.com -- Google (NASDAQ:GOOGL)’s stock experienced a drop today following comments made by Apple (NASDAQ:AAPL)’s Eddie Cue. According to Gene Munster of Deepwater Management, this could be the start of a downward trend for Google, as the company faces significant changes in the search industry that investors may not have fully accounted for in their current valuation.
Munster outlined the risk for Google, highlighting the shift in search from the traditional blue-link results page that has been the standard for the past 25 years, to a more simplified, AI-powered result. This shift presents two key challenges for Google.
Firstly, the company’s monetization model, which is heavily reliant on sponsored ads, will require a substantial overhaul. Secondly, Google Search is facing competition from new entrants in the market, including OpenAI, Grok, and Perplexity.
Eddie Cue’s comment that Safari searches decreased for the first time in April has also impacted Google, as Munster estimates that about 95% of Safari searches use Google, Safari’s default browser. Although overall Search traffic for the June quarter is projected to increase year over year, the growth rate is expected to slow down. The Street predicts a 9% growth in June, but Munster anticipates it being closer to 5%, assuming April saw a sequential decline from March. Google reported a 10% year over year increase in overall Search revenue in March.
Munster also referred to a statement from Reddit two weeks ago, reporting a negative impact on user growth due to changes in Google Search, which likely includes AI Overviews and a decrease in Search traffic.
Munster’s analysis serves as a warning to companies heavily reliant on Google Search, particularly online consumer retailers. His long-term outlook for Google is not optimistic unless earnings rise or the multiple expands, neither of which appear likely at the moment.
Munster also noted the ongoing challenge of the ChatGPT overhang, which he believes Google cannot address in the short term. Despite appearing cheap, Munster suggests the stock is priced as such for a reason. He emphasized that while Google possesses the necessary components - the data, the cash, the infrastructure - the company’s narrative has not changed over the past two years.
Meanwhile, Google’s competitors, including Llama, Grok, and OpenAI, have shown rapid improvement. Munster concludes by suggesting that the optimistic scenario for Google now relies on the belief that, despite the evidence and Eddie Cue’s comments, Google can quickly adapt and find a solution for a world beyond 10 blue links.
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