Google Investors Can Rest Assured: Google Search's Market Share Grows

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Google investors can breathe a sigh of relief as new data indicates that Google Search continues to dominate the search engine market. According to statcounter, Google Search's market share reached an impressive 92.64% by June 2023, up from 92.21% in November 2022 before the launch of Microsoft-backed ChatGPT and the refreshed Bing.

This growth in market share comes at the expense of Microsoft's Bing, which saw its market share decline to 2.77% by June 2023. It seems that consumers have chosen to return to Google Search after the initial hype around ChatGPT and Bing subsided. App downloads for ChatGPT and Bing slowed by a significant 38% in June 2023, indicating a waning interest in these alternatives.

However, it's worth noting that Google Search has experienced a decline in organic and paid website traffic. Organic total traffic dropped by 38.5% compared to March 2023, and paid website traffic decreased by 11.9% by June 2023. These declines could potentially impact Google's financial results for the second quarter of 2023.

While Google has been discontinuing various projects and streamlining its workforce, it remains to be seen how these efforts will translate to its bottom line. In contrast, Meta's Threads and Elon Musk's Twitter have also faced the challenge of maintaining user engagement after the initial hype. The success of these platforms will depend on their ability to retain users and monetize their user base effectively.

Furthermore, investors should be aware of Google's backloaded stock-based compensation expenses and increased investments in AI research and development. These factors could impact the company's profit margins and cash flow generation in fiscal year 2023.

It's also important to consider the broader advertising landscape. Global advertising spend is expected to moderate to a 5.9% year-over-year growth rate in 2023, reflecting economic uncertainty and a lack of cyclical drivers. Given that Google and Meta command nearly half of the digital ad share, their upcoming second-quarter results and guidance may provide valuable insights into the health of the global advertising market.

As for the performance of GOOG stock, it has already experienced a significant recovery, with a 39% increase since the November 2022 low and a 12% increase since the FQ1'23 earnings call in April 2023. There is potential for further upside based on its valuation, with a price target of $153.98 and a reasonable NTM P/E ratio of 20.95x.

Considering these factors, the GOOG stock is cautiously rated as a Buy. However, investors may also consider waiting for a potential retracement to the April 2023 support level of $105 for a better margin of safety. It's essential to assess one's portfolio appropriately, especially considering the uncertainties surrounding the current bull run and the possibility of a recession in the second half of 2023.

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