Canaccord Downgrades Google: 4 Reasons This FANG Stock Gets The Bite

As FANG stocks continue to outperform the S&P despite the fear of another tech bubble, Canaccord analyst Michael Graham has downgraded Alphabet Inc GOOG GOOGL to Hold with a $1,000 price target.

While Graham believes investors should be fine holding shares of Google this year, he noticed multiple factors that could lead to an eventual fall in share prices.

4 Reasons Google Investors Should Be Worried

1. Core growth has been primarily driven by an increase in ads on mobile devices and on YouTube; further increases are very unlikely. “As a result, we believe core search is likely to slow considerably over the next few years, while YouTube should be able to continue growing just over 20 percent on average annually. Overall, we think Google Properties can still hit 20 percent revenue growth next year, but it gets harder after that,” said Graham.
2. “Many of the fastest growing revenue streams are dilutive to gross margin and this is causing earnings growth to lag revenue growth beginning in 2018.”
3. Graham believes Google has had a “fuller” valuation over the past two years.
4. Google’s gross margin has fallen modestly.

Overall, even after raising revenue, gross profit, and operating income estimates, Graham still does not see enough upside for Google to justify a Buy rating.

Google was trading at $979.93 during Thursday’s pre-market session.