But on Friday, one analyst asserted that the market is actually too fearful.
Calling Google underowned and underestimated, Schwab SoundView's Jordan Rohan initated coverage on Google with a $180 price target and an outperform rating.
That price, more than double the $85 price at which Google went public in August, represents a 26% increase from where the search-engine operator was trading Friday morning. Google's stock, which already has climbed 67% from its IPO price, was trading at $142.35 Friday, up 35 cents.
Rohan's forecast, which comes after other analysts have lowered ratings on Google based on valuation concerns, is faintly reminiscent of Internet analyst Henry Blodget's forecast in December 1998 that
, then trading at a non-split-adjusted price of $242.75, would hit $400. While Blodget's call was considered by skeptics to be yet another foolish example of Internet mania, Amazon indeed hit his price target less than a month later.
Rohan bases his Google call on three points. First, he says that Google's shares are underowned by large-cap growth managers, at least compared to the levels at which they own two other large-cap Net stocks,
. The pent-up demand that comes from Google's small float of freely tradable shares will offset what Rohan calls an overblown fear of Google's lockup expirations, when more shares can come on the public market.
Second, Rohan says that Google has better prospects for growth -- in both revenue and earnings before interest, taxes, depreciation and amortization -- than Yahoo! and other tech and media stocks. "While there will be near-term volatility around earnings, GOOG should grow faster than YHOO over three to five years," writes Rohan, "as the business model is less mature and more focused on search."
Third, Rohan says that investors have very low expectations for Google, partly due to Google's "antics" on its pre-IPO roadshow and missteps along the path toward becoming a public company.
"Yet expectations for growth in paid search remain robust," says Rohan, and Google's position as the global leader in this market makes it the most efficient way for people to invest in the sector.
Google is slated to report third-quarter financial results Oct. 21. Rohan says he expects net revenue -- that is, revenue after subtracting out the fees that Google pays other publishers for running Google ads on their Web sites -- to grow 9% sequentially, compared to a consensus of 7% growth.
The risks loom large for Google, as Rohan admits. Chief among them, he says, is competition from companies including Yahoo!,
America Online -- which is a partner with Google now but could develop into more of a rival, says Rohan. Other investing risks, Rohan points out, are the possibility of greater expenses, due to increased sales and marketing expenses, and the unpredictability of Google's management and their unwillingness to make financial forecasts available to the public.