With a stock price of just over $500 per share, Google’s stock suddenly looks cheap – by Google’s recent standards anyway.
Google stock yesterday rallied 2.3 percent, or $11.37, to $506.80, rebounding from Monday’s close of $495.93, its lowest level in six months.
After spending much of 2007 as the unstoppable force on Wall Street, shares in the Internet search giant are off 32 percent since hitting an all-time closing high of $741.76 on Nov. 6.
While the stock dipped on the heels of Microsoft’s announcement last Friday that it bid $44.6 billion for Yahoo!, analysts said Google’s slowing momentum has more to do with investor anxiety over everything from a sputtering economy, to the company’s expensive push into the wireless business.
“The stock’s sell-off has been attributable to concerns about Google’s potential exposure to a macro-economic slowdown, particularly in light of its [fourth quarter] results,” Goldman Sachs tech analyst Jennifer Watson said in a note to investors.
Analysts have seemed particularly troubled by Google’s paid click growth – or the number of times Internet users click on an ad – which rose 30 percent from last year and 9 percent from the third quarter. Last year, Google posted a 61 percent rise in paid click growth year-over-year, and 22 percent from the third to fourth quarter.
Reflecting that trend, Goldman earlier this week softened its expectations for Google stock, removing it from its “conviction buy list.” But it reiterated its buy rating and $700 per share price target for 2008.
“We believe shares of Google look attractive given its dominance in search,” Banc of America Securities analyst Brian Pitz said yesterday.
As for a Microsoft-Yahoo! mega-merger, Pitz said the combination “could pose a significant threat to Google by giving Microsoft critical mass in search.” But near term the deal could prove to be a boon to Google, analysts said.
Among the upshots: the likelihood of regulatory approval for Google’s planned acquisition of DoubleClick figures to improve dramatically.
Thomas Weisel Partners analyst Christa Quarles added that “it may give Google a chance to sprint ahead while Microsoft and Yahoo! get bogged down in the details” of a merger. Quarles noted that Google may seek to expand its relationship with AOL, or pursue deals with a number of private ad networks to beef up its own display advertising business.
Even if a Yahoo!-Microsoft deal doesn’t happen, Google could still benefit. Analysts note that an outsourcing deal with Google is one of Yahoo!’s leading alternatives if it ultimately chooses to fend off a Microsoft takeover.