Google stock rise stumps analysts


SAN FRANCISCO - David Edwards, a financial analyst with American Technology Research, wants to believe in Google. But how do you embrace a stock that has more than tripled in 10 months and cracked the $300-a-share barrier so quickly as a publicly traded company that much of its growth potential seems already built into the price?

In early May, when Google was trading for $236 a share, Edwards sent a note to clients of his firm, a group that includes wealthy individuals and money managers who oversee huge pools of capital, recommending that they buy Google stock.

But Edwards, who has been analyzing publicly traded stocks for two decades, acknowledges that Google has him flummoxed now that it has sprinted past the $300 mark, to close at $304.10 yesterday, up $6.85. As the stock continues to climb as if it is 1999 all over again, many of his counterparts continue to recommend the stock.

Heath P. Terry, for instance, an analyst with Credit Suisse First Boston, predicted back in February, when Google was trading at just over $200 a share, that the stock would hit $275 within the year. When three months later the stock crossed $277, Terry raised his target price to $350, prompting several others to follow suit.

Edwards, too, says he believes in Google's long-term prospects, but says he's stumped about the advice he should give clients in the short term.

"It seems like everyone has jumped on the price-raising bandwagon, which has left me sitting here and scratching my head," he said.

Few if any are suggesting that the torrid rise in Google's share price signals an industrywide bubble as in the late 1990s. Google, based in Mountain View, Calif., had more than $3 billion in revenue last year, almost all from its advertising business, and its profits have increased more than sevenfold since July 2004.

By contrast, most of the dot-.coms that flamed out so spectacularly in 2000 and 2001 never turned a profit, if they even had much in the way of revenues.

Yet even some of those who were bullish on Google when it went public in August, at $85 a share, wonder if investors have forgotten some of the lessons of the 1990s.

Until recently, John Tinker, an analyst with ThinkEquity, a San Francisco-based investment bank specializing in growth companies, had been the leader among Wall Street researchers in setting the highest price target on Google. Yet even Tinker uses the "B" word - bubble - when describing the market's giddy embrace of Google, even while he has a price target of $330 on Google.

"The good news is this is a one-stock bubble," Tinker said. "Remember, in 1998, everything went up. That's a huge difference this time."

At the close of trading yesterday, the cumulative worth of all shares of Google stock added up to $84.5 billion. That gives Google a market capitalization of nearly the combined worth of the other two publicly traded giants created by the Internet, eBay, worth $45.4 billion, and Yahoo, worth $49.9 billion.

Any number of theories might explain the most recent run-up in Google's stock, which has risen 67 percent since April 1. Those range from data suggesting that Internet advertising revenue is rising by as much as 40 percent a year to a herd mentality among mutual fund managers ready to declare that resistance is futile: To post the kind of returns that would put them in the upper echelons of performance tables, they need to own shares in Google.

Terry of Credit Suisse thinks Google is still worth buying, even at today's price. He said Google had aggressively entered a range of markets aimed at extending its core search business, including a free e-mail product called Gmail.

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