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Google Is Mature, Falling Short and Fairly Valued: Scott Kessler


In the presidential debates, the winner of the coin toss always wants to have the last word, which is exactly what Google (GOOG) is about to get. With their scheduled product unveiling next Monday, the owner of Gmail and Youtube will get the last word when it take its turn in the spotlight behind some very tough acts. Given that we have just heard the latest from Apple on their new Ipad Mini and other revamped products, and also gotten the low-down from Microsoft on Windows 8 and its Surface tablet, Google will have to deliver something really big just to remain in the discussion. (See Related: High Hopes for Windows 8? Nope, Microsoft Is About to Bomb Says Jackson)

"We see a lot of pressure on the Google story," says Scott Kessler, senior equity analyst at S&P Capital IQ in the attached video. Not only does he see "search becoming increasingly mature" but he says Android and mobile are "becoming somewhat problematic" and feels the Motorola acquisition is restraining margins. Add in Kessler's belief that Google has ''fallen short in social'' and you get the idea why he thinks the stock is fully valued and thus deserving of a hold rating.

Of course, 80% of analysts who cover Google disagree with him and currently rate the shares a buy or strong buy. Even so, the stock has had a tough few weeks, sharply underperforming its peers and the broader market indexes, as its decline has now grown into the double digits. To be sure, the company's erroneously released - then unexpectedly weak - earnings report a week ago has only heightened his concern. (See Related: Google Shares Slammed! Company Misses Estimates in Premature Earnings Release)

"Ultimately I think Google is a lot more mature of a story with a lot more risk than people think," Kessler argues, adding that while there is still room for growth in search and Android and most of its businesses, it will be slower growth.
When asked what areas of opportunity CEO Larry Page is missing, Kessler's belief is more broad than specific, suggesting that the fact "Google is being investigated around the world" is distracting and restraining its efforts.

And so, for all of these reasons, Kessler is taking a pass on Google right now, and like the rest of us, is waiting to be by dazzled something that is new and sexy and growing rapidly.

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