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Google ‘Needs To Look Back To China’ To Boost Growth, Says Edison

Google, which withdrew its Internet search engine from China in 2010 after a disagreement over the country’s censorship rules, “needs to look back to China to bolster its flagging growth,” according to an industry note on Friday from Edison Investment Research analyst Richard Windsor. Edison’s research note comes as Google CEO Sundar Pichai has been on a visit to China involving Google’s AlphaGo artificial intelligence program , according to Chinese media reports. Lacking a search presence in China was initially not a problem because the search giant — now the largest unit within parent company Alphabet ( GOOGL ) — was experiencing quick growth in its core developed markets, said Windsor. With growth in those markets now slowing, “Google needs to look back to China” and that country’s expanding base of Internet users, said Windsor. However, convincing the Chinese government to let Google return will be a tall order, Windsor said, and the tech giant will likely “fail to get any real traction” now that local competitors have come on strong. Baidu ( BIDU ), which was Google’s chief search rival when the U.S. firm was in the Chinese market, is currently China’s largest search provider. “Even if the Chinese authorities let Google back in, they are very likely to place limitations upon Google, such that the home-grown crowd (Baidu, Tencent Holdings ( TCEHY ), Alibaba Group ( BABA ), Xiaomi and China Mobile ( CHL )) have the advantage,” Windsor said. “Secondly, the Chinese have been very busy developing their own ecosystems over the last six years or so, and this is no longer the virgin territory that it once was. Edison in fact estimates that 91% of all China ecosystem users are already using Baidu’s services, with 87% also playing games and chatting with Tencent,” he said. Google will have to fight for market share “even to get a toehold outside of Hong Kong (where Google is not blocked),” he said. “The net result is that the Chinese market will be a tough one for Google to crack, even with a level playing field,” Windsor said, adding that “Google is unlikely to get much more than the position in Hong Kong that it already has.” Still, Windsor said, “The good news for Google is that market expectations for its success in China are almost non-existent, and against that backdrop, the short-term outlook is reasonably rosy.” In 2010, Google said that it refused to self-censor content for Chinese services before closing its local search page and directing users to its website in Hong Kong. Other U.S.-based Internet firms, including professional networking leader LinkedIn ( LNKD ), operate in China and must censor their local content. Facebook ( FB ) and other Western social media, including Twitter ( TWTR ), are banned in China. Alphabet stock was up a fraction in afternoon trading in the stock market today , near 769, while Tencent stock was also up a fraction, near 21, and LinkedIn stock was up more than 1%, near 116. U.S.-listed Baidu stock was down a fraction, near 190, and Alibaba stock was also down a fraction, near 79.

Citi Cuts Amazon, NFLX, Google Price Targets On Stock Compensation

Citigroup slashed its price target on LinkedIn and also lowered its targets on shares of  Amazon.com ( AMZN ), Alphabet ( GOOGL ), Facebook ( FB ) and Netflix ( NFLX ) in a report that takes a close look at the earnings dilution from stock compensation grants. Tech companies, and some others, typically report both non-GAAP (generally accepted accounted principles) earnings — which exclude stock grants to employees, among other items — and earnings under GAAP, which include everything. Financial analysts typically provide non-GAAP estimates for quarterly results, and those numbers frequently get more play in quarterly earnings stories in the business press. “We are adjusting our models and price targets to better reflect the impact of stock-based compensation (SBC),” said Citigroup analyst Mark May in the research report. “Some may say this is a bear market issue, but we believe it is a necessary change that is long overdue.” Citigroup cut its price target on LinkedIn ( LNKD ) to 130 from 194. It lowered Amazon’s price target to 760 from 780, Google-owner Alphabet’s target to 900 from 924, Netflix to 116 from 121, and Facebook to 133 from 134. Citigroup maintained buy ratings on Amazon, Facebook and Google. It has neutral ratings on LinkedIn and Netflix. In morning trading on the stock market today , LinkedIn stock was near 115, Amazon near 597, Alphabet near 763, Netflix near 104, and Facebook near 115. All were up a fraction except Netflix, which was up 2%. The report also looks at the stock-based compensation of eBay ( EBAY ), Twitter ( TWTR ) and Yahoo ( YHOO ). “While most (investors) view Twitter as having the highest stock-based compensation ratio, LinkedIn’s grants as a percentage of revenue are higher than Twitter, and LinkedIn saw this ratio increase last year,” said the report. “While most view Amazon as having high stock-based compensation, it actually ranks near Netflix as among the lowest. Facebook ranks high, but grants declined last year, and its revenue growth, profitability and stock price performance provide important offsets. “The impact of stock-based compensation provides additional reason to remain cautious on LinkedIn and Twitter. “Unlike some people, we do not think stock-based compensation should be treated as a cash expense, mostly because it is in fact not a cash item. Instead, we account for it consistent with what it is — an ongoing source of dilution to equity holders.” According to Citigroup, on a percentage of revenue basis, the company with the highest stock compensation grants in 2015 was LinkedIn, followed by Twitter, Yahoo, Facebook, Google, eBay, Amazon and Netflix, respectively.

Square Challenges PayPal In Web Checkout

Square ( SQ ) is intensifying its offense against PayPal ( PYPL )’s Web checkout products. With details in a blog post early Wednesday , Square says that it has created a new tool that can process payments from any website after the seller adds several of lines of code. Called E-commerce API (application programming interface), it marks the first time that Square has offered sellers the ability to put a Square checkout page on any website. Square’s announcement mounts pressure on PayPal, which already is facing stiff competition from tech titans such as Apple ( AAPL ) Pay and Google’s Android Pay, among other offerings. Google is a unit of Alphabet ( GOOGL ). Prior to Wednesday, Square offered its merchants two Web checkout options using its own prebuilt store and two third-party options for using websites prebuilt by BigCommerce and Weebly. But the San Francisco-based company did not have solutions for merchants who opted to build their own websites. Square has more than 2 million merchants and is adding about 100,000 every quarter. PayPal has more than 13 million sellers. Both companies charge 2.9% plus 30 cents per transaction in the U.S. for website sales. Square — which is run by CEO Jack Dorsey, who is also top boss at Twitter ( TWTR ) — also is announcing Register API, a method to integrate Square’s payments processing into any iOS point of sale. Square says that it’s adding Register API in recognition of the fact that some sellers have specialized needs for point-of-sale applications. Square stock closed up 2.5% at 13.74 on Tuesday. The company has an IBD Composite Rating of 51, where 99 is the highest. Wedbush analyst Gil Luria said that the stock’s recent volatility is largely because the company has a small float — relatively few shares are traded publicly. The float will change once the lockup period expires in May. Luria also has previously told IBD that Square is popular among short sellers.