Google Shares Hit Another High Note

Updated from 2:10 p.m. EDT

Google's (GOOG Quote) volatile stock hit new highs Monday amid optimism about online advertising and the countdown to widespread research coverage on Wall Street.

Shares in Google, which went public in late August at $85 a share, closed at $119.36 in the regular session Monday, up $1.87, or 1.59%. Earlier in the day, shares hit $121.60 for a short-lived 3.5% gain for the day.

While analysts cite a variety of reasons for Google's rise -- it's up more than 41% from its initial public offering price and more than 17% since Sept. 9 -- the stock's bubble-era-volatility is clearly a factor.

"We expect the Google stock to have a higher beta than Yahoo! (YHOO Quote), and Yahoo! has a 1.5 to 1.7 depending on which source you want to quote," says Laura Martin of Soleil/Media Metrics, referring a ratio that describes how widely a stock's value can be expected to fluctuate relative to its peers. "So Google's stock price can be expected to be very volatile, both up and down, compared to the market."

Martin rates Google a sell with a price target of $90, citing "structural concerns about Google's long term growth rates." Neither Media Metrics nor Soleil provides investment banking services.

Saying she isn't surprised by the recent strength in Google's shares, Martin points out that more than a dozen firms will be initiating coverage on Google next week, following the end of the quiet period for IPO underwriters.

"We expect strength around those initiations," says Martin.

NYSE and NASD rules prevent managers and co-managers of an IPO from publishing research on that company's stock for 40 days following the offering. By TheStreet.com's calculation, Sept. 28 would be the first day underwriters would be free to publish their research.

Mark Mahaney of American Technology Research says several factors are contributing to Google's recent price rise.

One, he says, is that Google is being added to stock indexes. Yahoo!, Google's chief competitor and closest comparable stock, has been rising as well. (Trading at $33.11 Monday, down 35 cents, Yahoo! is up 8.6% since Sept. 9.) And, says Mahaney, recent reports indicate continued strength in the Internet advertising, compared to post-second-quarter concerns that ad growth had slowed dramatically.

Surging Google rising again

Mahaney rates Google a hold and has a $110 price target on the stock. His firm hasn't done investment banking for Google.

One explanation for Google's volatility may lie in the revelation that Fidelity, as of Aug. 31, owned stock amounting to a significant proportion of the shares that were sold to the public in Google's IPO. With holdings of 5.2 million shares, Fidelity has a stake equal to 23% of the 22.5 million shares sold in the IPO. (Google's underwriters, which planned to sell 19.6 million shares to the public in the August IPO, ended up selling some 2.9 million additional shares to cover over-allotments.) Fidelity owns 1.9% of all outstanding Google stock.

Meanwhile, Google and its rivals continue to make waves on other fronts. On Sunday, the New York Post reported that, based on recent hires of high-tech personnel, including certain Microsoft (MSFT Quote) veterans, it appeared that Google is developing its own Web browser and other software products to challenge the Redmond giant.

On Monday, Time Warner's (TWX Quote) America Online launched a comparison shopping service available to all Internet users, not simply its members. Whatever impact AOL's inStore service may have on Google, which operates the Froogle shopping search engine, wasn't immediately clear. Time Warner's shares dropped 12 cents Monday to trade at $16.77.