The Great Google $600 Debate

MOUNTAIN VIEW, Calif. (TheStreet) -- This was the year Google's (GOOG Quote) business went flat, but you wouldn't know it from the stock, which keeps on climbing.

Having recently hit a 52-week high of $507, some analysts have started a new round of Google $600 price target forecasts. The working thesis for this optimism is that online ad spending may soon pick up and Google, the colossus of the search ad industry, will collect the most money.

"We believe that Google benefits materially from a search spending rebound especially by retail, financial services, and the auto sector," Collins Stewart analyst Sandeep Aggarwal wrote in a research report, adding that these three segments make up about 50% of Google's ad revenue.

No question, Google needs a few industries to start spending a little more freely, but there's been no clear sign that those good times are coming back.

Google's most recent quarterly results certainly didn't offer any solid evidence. If anything, Google's aggressive 15% ad-placement growth and depressing 13% slump in revenue per click for the quarter were troubling. Google is priming the pump with more ads, but consumers aren't clicking and buying.

After its first ever decline in sales in the first quarter, Google stayed flat in the second quarter with revenue and operating costs sequentially flat. That's a glass half unchanged.

About 94% of Google's revenue comes from search ads, and try as it has, the firm has been unable to find new avenues to growth. YouTube remains the most popular Web video site, and Android has taken hold as a challenger to Apple (AAPL Quote), Research In Motion (RIMM Quote) and Nokia (NOK Quote) in the mobile operating system game. But neither YouTube nor Android have contributed much to Google's top-line growth.

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