BANGALORE (Reuters) - Wedbush Securities initiated coverage on Google Inc with an "underperform" rating, saying the Internet search giant faced stiff competition from Facebook in the U.S. and a cutthroat mobile search environment posed a large risk to Google's core search business.
Google gets much of its revenue from user clicks that direct traffic to websites and Facebook, with its more than 500 million user base, was already driving traffic to many websites, the brokerage said in a research note dated August 16.
"We believe that as Facebook refines its embryonic social semantic search capabilities enabled by the Open Graph, Facebook will compete more directly with Google in search," it said.
The Open Graph project weaves Facebook's social networking capabilities directly into third-party websites. A visitor to CNN.com, for instance, can click a button to "like" certain news articles, and see which of their Facebook friends have endorsed content on other websites.
The brokerage noted that Google continued to grow its search business in the rest of the world and this growth would continue for the rest of 2010 and through 2011.
Google recently bought social networking company Slide for $182 million to bolster its social networking capabilities to compete with Facebook.
Wedbush added that mobile, or wireless search, would become increasingly competitive with search engines Bing and Yahoo, mobile phone manufacturers such as Apple Inc and Research In Motion Ltd, and carriers like Verizon Communications Inc vying for a piece of the pie.
It set a $525 price target on shares of Google.
The Mountain View, California-based company's shares were trading up $3.04 at $488.63 in early-morning trade on Nasdaq. They have lost almost 9 percent of their market value in the last six months.
Reporting by Sayantani Ghosh in Bangalore; Editing by Maju Samuel