Google ( GOOG) surged 7% Friday as Wall Street applauded the search engine's long-awaited addition to the S&P 500 index. Analysts agreed that the move couldn't have come at a better time for the Mountain View, Calif., company, whose shares have dropped 18% this year after some mixed operating performances and investor relations gaffes. Google will join the S&P at the close of trading next Friday. The early runup at Google, which jumped $25.11 to $367 early Friday, adds to a history of shares rising once they're added to the big-cap index. "Historically, stocks added to the S&P 500 posted median gains of nearly 7% and average gains of about 8.5% during the during the 30-day window following the announcement up to actual inclusion, which we believe reflects both speculative buying as well as physical demand for the stock from index funds," writes Bear Stearns analyst Robert Peck, who rates the shares outperform. S&P's move,
announced Thursday afternoon , finally answers an oft-asked question on Wall Street. Investors have long speculated that the fast-growing, highly profitable company was overdue to join the S&P. At the end of last year's third quarter, Google fanatics drove the stock up in anticipation of an S&P addition but were disappointed. That ranked among the precious few setbacks Google investors suffered in the company's first year-and-a-half as a public company. After coming public in August 2004 at $85, Google closed out 2005 at a robust $414. This year has been different, though. While the company is continuing to benefit from the shift of advertising dollars online from traditional media such as newspapers, magazine and television, Google has been hit hard by a fourth-quarter earnings shortfall and some cautious comments by an executive at an investor conference. Still, Google appears to be in no danger of losing its No. 1 position in the search market. Though demand is for search shows some signs of maturing, companies are still finding it a cost-effective way to reach consumers. Market researchers continue to show that the company is gaining market share at the expense of its rivals. Google now is trying to move beyond search with new offerings such as the business news site Google Finance. That feature, which launched this week, won kudos from analysts and bloggers for its design and functionality. Previously, Google has been roundly criticized for releasing flawed offerings that were inferior to competitors. Google even looks cheap to some longtime skeptics about the stock, such as Stifel Nicolaus analyst Scott Devitt, who raised his rating on the shares to buy from hold before the S&P announcement. He argues that the valuation of Google appears more attractive than it did earlier this year. The stock is now trading at a forward price-to-earnings ratio of 30.8, compared with eBay's ( EBAY) 29 and Yahoo!'s 44. Analysts are predicting first quarter revenue growth of 82% at Google, 32% at Yahoo! and 34% at eBay, according to Thomson Financial. Another analyst says Google's momentum should linger through first-quarter results, which are due April 20. The results should be "solid," says Jefferies & Co. analyst Youssef Squali, who rates the shares buy. He is expecting the company to make $2.04 a share on a so-called normalized basis on revenue of $1.44 billion. Analysts surveyed by Thomson Financial expect earnings of $1.99 a share on revenue of $1.45 billion. Whether Google stock can recapture the ground that it's lost this year remains an open question. Investors still are worried about the slowing growth rates and the increased competition from Microsoft ( MSFT) and Yahoo!. Advertisers also are spreading out their spending on search in more areas and are more selective in how they spend.