Google Mounts a Comeback

The stock staggers back toward break-even for the year.
Author:
Publish date:

Google

(GOOG) - Get Report

shares may soon get back into the black for 2006, but it hasn't been easy.

Shares of the Mountain View, Calif., Internet search giant have had a rough couple of months. After doubling in 2004 and in 2005, Google got off to another red-hot start in January, soaring 15% in the first couple weeks to an all-time high of $475 and change. But the stock then tumbled more than 20% on the heels of an earnings shortfall and a series of communications gaffes.

Since last month, Google bulls have mounted a comeback. On Wednesday the stock was up for the third straight day, at one point coming within pennies of its 2005 closing price of $414.86. But the early rally petered out at $414.57, just shy of the break-even mark and leaving Google in the red for the year. At midday the stock was up $1.09 to $405.43.

Some optimism has returned to Google, in part thanks to its inclusion in the

S&P 500

index. Fund managers who mimic the benchmark are required to buy shares. The spirits of Google investors were further lifted last week when the company sold an additional 5.3 million shares to meet the demand of the index managers.

"You wouldn't be Google and price a deal last week at the end of the quarter and not know that your numbers aren't solid," says Martin Pyykkonnen, an analyst with Hoefer & Arnett who rates Google a buy with a price target of $550.

Even so, some headwinds remain. Google has rolled out some new products recently to mixed reviews, notably the Google Finance offering that clearly takes aim at rival

Yahoo!

(YHOO)

. Execs and investors continue to worry about the mounting threat from

Microsoft

(MSFT) - Get Report

as well.

All along Wall Street analysts have urged shareholders to keep the faith in Google, though they have ratcheted down their lofty expectations. They have divergent views about how far the stock will continue to rise. Their mean target price target is $479.43, with a low of $300 and a high of $600.

One question for investors is what Google is going to do with the $2 billion in cash it raised. The company already has a hefty war chest, and Wall Street analysts have speculated that the money will go for everything from acquisitions in Asia to capital spending.

Google, which meticulously tracks all data concerning its performance, shares very little of it with investors. That reluctance to share information along with the company's lack of earnings guidance makes Google a difficult company for Wall Street to analyze.

Until the fourth quarter, Wall Street consistently underestimated the company's growth, and that boosted the shares. Analysts' estimates continue to vary widely, ranging from $1.82 to $2.10 in the first quarter, according to Thomson Financial.

Bouncing
Google off its lows

About the only thing that everyone -- including the company -- can agree upon is that Google's stratospheric growth is starting to slow. Last year, Google posted a 108% jump in first-quarter revenue, excluding the money Google shares with its partners. This year, quarterly sales on that basis are expected to jump just 82%, according to a Thomson Financial survey.