Google's "sea-change" sets stock sailing

Paul Thomasch

NEW YORK: Google Inc. shares rocketed to an all-time high on Friday as an impressive round of quarterly results appeared to win over skeptics worried that the Web search company was more bark than bite.

The company's earnings report on Thursday surpassed Wall Street expectations for the fifth straight quarter since its initial public offering. Behind the results was what the company called a "sea-change" shift by major companies to online marketing from print and broadcast.

Google shares closed up $36.70, or 12.1 percent at $339.90 on Nasdaq, bringing its market capitalization close to $100 billion, a mark held by only two other Silicon Valley companies -- Intel Corp. and Cisco Systems Inc.

Although Google has long been a hot spot for users searching for everything from news to long-lost friends, some have questioned whether the company can turn its popularity into steady advertising dollars. Its earnings report appeared to put those questions to rest -- at least for now.

"They've come up with a new product that is changing the way people are advertising," said ThinkEquity analyst John Tinker. "They are changing the way people are doing business."

Before the stock market opened on Friday, analysts quickly issued another round of Google upgrades. Among those, Needham boosted its price target to $370 from $300 a share, while Banc of America Securities increased its target to $360 from $280.

First Albany and Lehman Brothers went further, upping their price objectives to $450 a share.

Google, whose stock is now up nearly 340 percent from its initial public offering 14 months ago, had hovered around the $300 level since June.

Other Internet stocks also got a boost from the rally, with Chinese Internet company Baidu.com Inc. adding 6 percent to $70.00 and U.S. Internet marketing company aQuantive Inc. seeing its shares rise 7.9 percent to $21.25.

YEAR-END NASDAQ RALLY?

"Google's earns may reaffirm that tech is not dead," said Tim Biggam, chief options specialist at options brokerage Man Securities. "Normally the fourth quarter is by far the best performing quarter for technology stocks and Google earnings may provide the impetus for a year-end rally in Nasdaq."

Google said third-quarter net income rose to $381.2 million, or $1.32 per diluted share, from $52.0 million, or 19 cents a share, a year earlier. The prior quarter included a noncash charge of $201.0 million to settle a patent dispute.

Gross revenue jumped 96 percent to $1.58 billion. Analysts, on average, had projected revenue of $1.46 billion.

"I think people are going to look at the Internet again even if they have been burned in the past," said Mark Herskovitz, manager of the Dreyfus Premier Technology Growth Fund.

"From a historic perspective, I would say that it is not uncommon for new technologies to emerge and for investors to become overly enthusiastic, which is what happened with Internet round one, and then become unduly pessimistic after their initial expectations were not realized," added Herskovitz. The $2 billion fund owns 170,000 shares of Google.

While Wall Street welcomed the upside surprise, some also raised questions about the company's visibility.

Merrill Lynch analyst Lauren Rich Fine wrote in a research note that Google had a "great" quarter but surprises "cast some doubt on management's ability to predict its own business."

ThinkEquity's Tinker also voiced concern about visibility.

"At some point there is going to be a blowup in this company because they don't provide any metrics and there are no good models on this stock," he said.

(Additional reporting by Eric Auchard in San Francisco, Cal Mankowski in New York and Doris Frankel in Chicago)