One top Wall Street firm believes Google-parent company Alphabet needs take dramatic measures to compete with the success of the Amazon Echo.
Morgan Stanley told its clients the internet giant should defend its retail ad sales turf by giving away its Home Mini devices, and it wouldn’t cost that much.
“We argue Alphabet needs more devices/smart speakers in people’s homes. The growth of voice shopping combined with Amazon’s expected install base advantage could threaten long term growth in Alphabet’s high-monetizing retail search category,” analyst Brian Nowak said in a note Thursday. “Like the mobile transition when Alphabet gave Android to OEMs and began paying Apple to power Safari search, we believe Alphabet should give away a Google Home Mini to every US (arguably global) household.”
Nowak estimates Amazon will have 62 percent share of the U.S. smart speaker market at year-end 2018 versus 33 percent for Alphabet. The analyst projects more than 70 percent of U.S. households will own a smart speaker with voice commerce capabilities by 2022. He says it will “only” cost Alphabet $3.3 billion, which is a “small price to pay” given the opportunity.
“We see voice shopping likely leading to faster eCommerce adoption…so in our view, the only question is whether/how much Alphabet will participate in voice commerce monetization,” he said. “More aggressive investment in a Google Home Mini giveaway could also drive the sum of parts [valuation] narrative.”
Nowak also predicts Alphabet will miss the second-quarter earnings per share Wall Street consensus estimate by 1 percent due to currency effects and investment spending.
He reiterated his overweight rating for the company’s shares and raised his price target to $1,250 from $1,200 because of Alphabet’s long term opportunity to increase its profits.
Google should give away a free Home smart speaker to every US household, Morgan Stanley suggests