Google Floats Past $170

The stock has doubled in barely two months, boosted by strong numbers and the dearth of tradeable shares.
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Google's (GOOG) - Get Report surprisingly strong numbers had analysts up and down Wall Street reassessing the stock again Friday.

At least two brokerages raised their price target to $200 -- a shocking development considering that the search-engine firm went public at $85 two months ago, amid much speculation that the company had overestimated the value of its shares.

Just last month,

the most optimistic of Google's underwriters was setting a price target of only $145 per share. But the market keeps raising the bar. Google jumped 15% Friday morning, putting it up more than 100% since its Aug. 19 IPO.

Google's doubling in a mere two months can be attributed to several factors, only one of which is the continuing strong growth demonstrated in Thursday's

third-quarter earnings. Other issues include the relatively small number of shares in public hands and the apparent acceleration of the paid-search advertising market. How well those trends hold up may go a ways toward explaining the stock's action in coming weeks and months.

At midday Friday, Google was up $23.28 at $172.66.

Solid Progress

That's not to say third-quarter numbers weren't impressive. Revenue -- excluding traffic-acquisition costs, or the money Google pays to other publishers for placing advertisements on their Web sites -- amounted to $503 million for the quarter, well ahead of the Thomson First Call estimate of $454 million. Earnings per share, excluding one-time items and stock-based compensation, amounted to 70 cents, more than 20% ahead of the 56-cent consensus.

Buoyed in part by

Yahoo!'s

(YHOO)

similarly strong third quarter, reported earlier in the month, outsiders are growing increasingly confident about the potential for growth in the paid-search and pay-per-click online advertising market.

But Google's rise also has been aided by the relatively limited amount of freely tradeable shares in the stock. Based on

Securities and Exchange Commission

filings, Google's float in the latest quarter amounted to 27.2 million shares.

About 9.5 million of those shares have, at times, been held by

Legg Mason

and mutual fund giant

Fidelity

, leaving perhaps 18 million of those shares -- now worth about $3 billion -- to be held by other folks.

Over Wednesday and Thursday, 26 million Google shares changed hands, for an average trading volume of 13 million; Friday's volume had already hit 16 million shares by noon.

In comparison, Yahoo! -- which has an average daily trading volume of 19 million shares -- has a float of more than 1.1 billion shares worth more than $40 billion.

So one key question is whether the increased amounts of Google shares due to come to market -- 39 million additional locked-up shares could start trading starting in November -- will offset the demand from active fund managers, index funds and other investors.

Overweight

In the meantime, analysts had little but good to say about Google in the wake of its results.

Reiterating his overweight rating on Google, Prudential's Mark Rowen raised his price target on the stock from $130 to $200. "We believe that GOOG continues to gain market share in Sponsored Search advertising," wrote Rowen, noting that third-quarter net revenue grew 107% from last year's third quarter, compared with Yahoo!'s organic growth rate of 38% for its overall advertising business. Prudential was not an underwriter for Google.

Also raising his price target to $200 was Schwab SoundView's Jordan Rohan, who previously had the street-high estimate of $180 on the stock. Reiterating his position that Google is both underowned and underestimated, Rohan said the most striking metric released Thursday was the 20% sequential growth in search revenue on its own branded sites, compared to the 11% growth in its affiliate network.

Other analysts, including SG Cowen's Jim Friedland and RBC Capital Markets' Steve Jue, indicated that one of the key elements behind Google's results was the growth of its international business, which went from 31% of the company's revenue in the second quarter to 35% in the third.

"We expect strong near-term revenue growth and have raised estimates," Friedland wrote. "Nevertheless, we believe there is significant risk exposure, especially given the planned entry of

Microsoft's

(MSFT) - Get Report

MSN and do not believe there is enough upside to justify purchase at current levels." Cowen doesn't issue ratings or price targets; the firm wasn't a Google underwriter.