Rediscovering Google (NASDAQ:GOOG)

By Carol Kopp  SEP 25, 2012 9:50 AM

The hot young names are in the doghouse, but an old reliable is back in Wall Street's favor.

 


MINYANVILLE ORIGINAL Google (NASDAQ:GOOG) surpassed its all-time high stock price on Monday, reaching $748.90 in intra-day trading before closing up 2% on a generally down day for tech stocks. Or, to put it less prettily, Google stock has been in the dumper for five long years, and it has finally crawled back out. It is trading at heights it hasn’t hit since November 2007.
 
What happened? Not much, actually.  Google has just been chugging along, printing the money it earns through its still-dominant 67% share of the Internet search market. Along the way, it has insured its future in a mobile Internet world through its Android mobile operating system, which now boasts a 68% share of the smart phone market.
 
It has certainly had its misses along the way. Google+, the company’s latest attempt at a social site, is a mild success at best. Google Shopping, which never worked, seems to be getting worse with tinkering.  
 
But, hey, Google overall is a very solid business, with a good growth story ahead. And that’s more than most anyone can say for the newer, younger businesses in its space like Groupon (NYSE:GRPN), Zynga (NASDAQ:ZNGA), and above all, Facebook (NASDAQ:FB).
 
In fact, Google’s rise is directly related to Facebook’s fall from grace. Only a few months ago, Facebook appeared to many to represent a real threat to Google’s place at the center of Web activity. At the very least, they expected Facebook to come up with search functionality that Google hadn’t thought of. Google stock has risen more than 30% in three months, about three times as fast as the Nasdaq (INDEXNASDAQ:.IXIC) as a whole, and a number of other reasons are cited.

The immediate catalyst for Monday’s move upwards was a note to clients from Citi analyst Mark Mahaney, boosting his price target to $850 from $740. He cited signs of growth in search advertising revenue, and a particularly promising rise in mobile pay-per-click revenue.
 
Deutsche Bank currently has a target of $890 for Google. Capstone’s target is $830.
 
In its next earnings report, due in mid-October, Google is expected to report its fastest sales growth in five years. Analysts predict sales growth of 59%, with earnings of $10.57 per share on sales of $11.95 billion.
 
There’s another immediate reason for Google to be in the spotlight: Buyers of the Apple (NASDAQ:AAPL) iPhone 5 have actually found something to complain about, and it’s the absence of the Google Maps app in the latest version of the iPhone. Apple Maps is just plain inferior, which is what you would expect of a product created mostly out of a desire to spite a competitor. Unconfirmed reports say that Google has submitted a new version of Google Maps to Apple for approval, and if accepted it might be available for the iPhone 5 in two weeks or less. This is not peanuts. Google Maps is a $625 million-per-year money-maker already, and it is one with a bright future, given the opportunity to sell local advertising based on a mobile user’s current location.
 
Also, investors have gotten over their unease about Google’s acquisition last spring of Motorola Mobility.  Google has since cut costs at the company, and rededicated it to making better Android phones.
 
As always, there’s a glass-half-empty argument on Google. It suggests that Google is no longer at the cutting edge, that it’s simply reacting to trends, playing “follow the leader” as new products emerge from other companies.
 
Such as Android, an operating system that Google created only after the success of Apple’s iPhone.  Except that Android now has about four times the 17% share of the smartphone market that Apple holds.

Meanwhile, Android users get to laugh at Apple Maps. A Fortune writer explains the fascinating reasons for some of the app’s shortcomings. But it’s more fun just to explore its world of errors, on a new Tumblr page and elsewhere. Like locating Berlin in Antarctica, and flattening the Eiffel Tower, and directing users straight into bodies of water.
No positions in stocks mentioned.

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