Google Breaks $400 Mark

How high can Google Inc. fly? That was the question of the day for technology investors as company shares cracked the US$400 mark, in a generally upbeat market led by Hewlett-Packard Co. (HP) and other IT companies.

Google shares (GOOG) closed Thursday at $403.45, up $5.30 for the day, and up by 350 percent since going public last year. When the company broke the $300 barrier earlier this year, skeptics warned that it might be overvalued. After all, search rival Yahoo Inc., which closed (YHOO) at $42.27 Thursday (up $2.23 for the day), has been trading in the $30 to $40 range all year.

Yahoo has made creative strategic moves this year, experimenting with the “social tagging” type of features that allow users, for example, to share photos via the company’s Flickr service, which it bought earlier this year, and letting users share their personal Web index of pages via its My Web offering. Microsoft Corp. also is throwing its considerable R&D weight and marketing dollars at its own search technology and various MSN services, while encouraging Lotus Notes creator Ray Ozzie to refresh company thinking on interactive Net technology. Cautious investors have to wonder how long can Google stay ahead of these and other competitors.

But right now, Google’s search popularity gives it what appears to be a stranglehold on Internet access. When Web-site programmers get together, they talk about how to architect sites to improve Google rankings — Yahoo is an afterthought because most traffic coming in through search engines comes in through Google. Advertisers know this, which is one reason why Google’s third-quarter revenue reached $1.58 billion, up 96 percent compared to 2004’s third quarter.

So while $400 a share is stratospheric, and there are some analysts who urge caution, the majority of investment advisors are still bullish on Google at its current price. Of 34 analysts polled by Thomson First Call, five advised a “strong buy,” 18 a buy, 10 a hold, and only one counseled selling the stock right now.

Google is at the forefront of an upbeat market this week, led by technology companies including HP, which Thursday reported third-quarter results that beat analyst expectations. Due mainly to strong PC and server sales, HP reported revenue of $22.9 billion, up from $21.4 billion one year earlier and edging out analyst estimates of $22.8 billion, according to First Call. Though the company was hit by layoff charges, profit excluding one-time items amounted to $1.7 billion, or earnings per share of $0.51. This beat the analysts’ consensus forecast of $0.46.

HP reported after the market closed, but some analysts were predicting that results, due to strong hardware sales seen in other financial reports, would be on the high side. As a result, HP (HPQ) shares closed Thursday at $29.00, up $0.79 for the day.

During the thick of earnings season last month, many bellwether IT companies were cautious about revenue forecasts for the next few quarters, partly as a result of macroeconomic fears that U.S. inflation and rising oil prices would put a crimp on user purchases. But upbeat feelings about Google and HP this week fueled tech shares, while macroeconomic indicators in the last few days were generally good. Recent days brought news of slumping oil prices and a U.S. Labor Department report of just a small rise in the consumer price index, a traditional indicator of inflation.

The good news helped buoy the Nasdaq Composite Index (COMPX), weighted with technology stocks, which closed Thursday at 2220.46, up 32.53 points for the day and at the high point of its 52-week range.

By Marc Ferranti, IDG News Service