- The Washington Times - Friday, April 21, 2006

SAN FRANCISCO (AP) — The anxieties that rattled Google Inc.’s stock a few weeks ago have evaporated, giving way to another burst of euphoria after the online search-engine leader delighted investors with first-quarter earnings that erased recent doubts about its growth.

Wall Street celebrated by driving up Google’s shares by as much $35.72 yesterday, prompting some analysts to predict it won’t be long before the company’s stock price surpasses $500 for the first time.

But just because Google shares are flying high again doesn’t mean there won’t be more turbulence ahead, reviving some of the concerns that caused the stock price to plummet from its peak of $475.11 in January to $331.55 last month — a 30 percent swing affecting nearly $45 billion in shareholder wealth.

“There will always be things to be excited about and things to be worried about with a stock like this,” said American Technology Research analyst Rob Sanderson. “They are going to keep us on our toes.”

Mountain View, Calif.-based Google injected even more optimism into analysts’ already bright outlooks by reporting a 60 percent increase in its first-quarter profit. The earnings, released late Thursday, topped the average analyst estimate by an extraordinary 32 cents per share. Revenue surged 79 percent to $2.25 billion, an astounding growth rate for a company as large as Google.

The performance prompted several analysts to raise their financial projections for the remainder of this year, helping to lift Google shares by as much as 8.6 percent during trading yesterday on the Nasdaq Stock Market before settling down later in the session.

The shares still closed up $22.10, or 5.3 percent, to $437.10. Google’s stock has more than quintupled from its August 2004 initial public offering price of $85.

Citigroup analyst Mark Mahaney was so impressed with Google’s first quarter that he increased his price target on the stock by $60 to $550.

Piper Jaffray analyst Safa Rashtchy raised his earnings estimate and said he was probably still being too conservative as he reiterated his belief that Google is headed toward $600 — a price that would give the 71/2-year-old company a market value of $185 billion.

The high hopes are founded on the belief that Google’s search engine will remain the Web’s most popular advertising vehicle while the company continues to expand its services to mobile devices and tries to license more software to corporate America.

Google also wants to control more advertising in the print and broadcast media, an ambition that could generate even bigger profits.

The company’s success abroad during the first quarter also hints at even bigger things to come, particularly if the Google’s grand designs in Asia pay off.

International search accounted for 42 percent of Google’s revenue in the first quarter, up from 39 percent at the same time last year.

Google Chief Executive Officer Eric Schmidt described the company’s international showing as a “blowout.”

There are still head winds facing Google’s stock, most notably the possibility that the company won’t be able to live up to the lofty expectations set by analysts who are making their calculations with little help from the company’s management, which has steadfastly refused to make financial projections.

The company’s no-guidance policy makes it difficult to manage investor expectations, exposing the stock to emotionally driven price shocks.

Google’s stock began its sharp descent in February and March after the company missed analyst estimates for the first time as a public company. The shortfall triggered alarms about decelerating earnings growth, worries that seem silly now.

But those concerns could crop up again during the spring and summer, traditionally a sluggish period for Internet advertising.

because people don’t spend as much time in front of their computers.

That makes it unlikely Google’s second and third quarters will match the impressive growth of its first quarter when its revenue — excluding ad commissions — rose 19 percent from the previous. Mr. Schmidt warned the investment community about the upcoming slowdown in a Thursday conference call, but that won’t necessarily insulate the stock from disappointment.

Google also continues to face challenges from its two biggest rivals, Yahoo Inc. and Microsoft Corp., which are both determined to lure advertising away from the Internet’s reigning search king.

For now, Google is securely ahead in the U.S. search-engine market, with a 49 percent share last month, followed by Yahoo at 22.5 percent and Microsoft’s MSN at 10.9 percent, according to Nielsen/NetRatings.

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