More Reasons to Buy Google - TheStreet

More Reasons to Buy Google

Bulls don't need 10-year forecasts. There's plenty to love now.
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Wall Street's enthusiasm for


(GOOG) - Get Report

is back in full swing, with at least four big research houses issuing bullish comments this week.

But investors should decide what exactly to get excited about before deciding to climb on board.

On Wednesday, Cowen reiterated its buy rating on Google, saying that it expects the company to increase its market share of the search market from 55% to 90% over the next decade. Cowen makes a market in Google shares.

Google shares closed Wednesday up $1.13, or 0.2%, to $544.47.

Along with the usual list of reasons Google will extend its dominance -- the company's massive R&D expenditures allow it to offer an increasingly superior search product compared with





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, while letting it woo new users by rolling out free applications -- Cowen analyst Jim Friedland also lists some interesting new considerations.

A Cowen survey found that 72% of the respondents between the ages of 18 and 24 preferred Google vs. the broader market share of 50% to 55% overall, for example. And products such as Google Apps for Education that target colleges could further buttress Google's dominance among the emerging generation of Web users over the next decade.

Still, decade-long forecasts in such a rapidly shifting market present a flimsy reason to buy Google. The company itself didn't exist 10 years ago, and serious competition for market share may come from an upstart rather than from one of the existing giants. And there are so many different approaches being tried in the nascent space that the success of even one could give Google a serious run.

Smaller competitors are coming at Google from every different angle, even as giants such as Yahoo! and Microsoft continue to lose to the search giant at its own game.

Recent entrant Mahalo, for example, is betting on a form of human-augmented search that knits together answers assembled by its own staff, and simply shows Google results if it can't do any better.

Powerset, on the other hand, is gunning for a very technically ambitious approach that would allow users to search using terms from everyday language. And


(IACI) recently launched a service that focuses on showing search results in a much more spruced-up way.

Indeed, Google's share of the search market may be among the least-compelling reasons to by the stock. In the short term, investors are already counting on a strong performance.

And over the long term, it's simply too difficult to make bold predictions.

But Google's pursuits outside of search, on the other hand, may actually present new reasons to buy the stock. And chief among these is the online display ad market Google recently entered

through its purchase of DoubleClick.

The rapidly expanding, nonpremium display ad market, where DoubleClick announced plans to launch an ad exchange -- and where Yahoo! hopes to be a bigger player through its acquisition of Right Media -- will be especially promising, ThinkEquity analyst Stewart Barry wrote in a Monday research note that raised his price target for Google to $700. ThinkEquity makes a market in Google shares.

"Our checks indicate that the DoubleClick Advertising Exchange is to become the leading online advertising exchange, given its leading ad-serving footprint, marginalizing Right Media in the process," Barry wrote.

He estimates that the nonpremium display segment -- which puts ads on a Web site's niche pages rather than its home page, for example -- will total $4.1 billion in 2008 and be the fastest-growing segment online. The DoubleClick deal, meanwhile, will expand Google's advertising market by 15% in 2008.

While still early, Google's foray into the online application space could also be promising, highlighted earlier this week by its

acquisition of the security company Positini. The acquisition will allow Google, which is already popular among small businesses, to go after bigger customers, which tend to be more concerned about factors such as security and dependability.

That, too, could create a source of growth outside of the strong search business that Google is expected to deliver.

"Our forward estimates and valuation for Google are currently almost 100% based on Internet search revenue," Citigroup analyst Mark Mahaney wrote in a research note on Monday. "To the extent that Google is successful in generating non-search revenue," wrote Mahaney, who places a $600 price tag on Google, "that implies upside to our estimates and to the stock." Citigroup makes a market in Google shares.

An even more complete domination of search 10 years out may be too much for Google investors to count on. But even small gains now outside of search could mean big things for the stock.