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Parsing the Street's Reaction to Google


Bulls and bears weigh in on the search giant.

Google (GOOG) shares slid by more than 3% to $563.94 this morning after its earnings release yesterday. Reactions are mixed as to where the company's stock is headed.

Will Google pull out of China? Will Google's Nexus One mobile phone adapt to combat the negative press it's been hit with since its recent launch? And what about the news that Apple (AAPL) is considering replacing Google as the default search engine on the iPhone with Microsoft's (MSFT) Bing?

According to BusinessWeek, an Apple shift to Bing would "cut Google off from some of the search data that's the lifeblood of its business. Google has grabbed 65% of the traditional PC-based search market in large part because it has had far more information about what people are looking for and could use that to refine its search algorithms. If it can't get the same kind of data as people shift their computing to the iPhone and other mobile devices, Google risks losing its edge in search."

"This would be a significant blow," said analyst Jonathan Yarmis of the research firm Ovum. "Google would be cut off from the most important platform on the mobile Web."

We all know the markets hate uncertainty. But Standard & Poor's equity analyst Scott Kessler told the Wall Street Journal that Google, specifically, "is a stock that tends to not fare as well when there is material uncertainty that is not fully addressed."

Here's what the word on the Street is:

  • Collins Stewart downgraded Google to Hold and lowered its price target to $615 from $635. Beyond 6% to 10% upside, the firm says Google is "increasingly becoming a show-me story" and Google will need to prove its ability to improve upon its non-core search business.

  • Jefferies believes Google's revenues will be affected by only 1% to 2% in 2010, due to the China issue. However, not being part of that huge and fast-growing market will be a long-term strategic loss.

  • Citigroup estimates Google's 2010 revenue from its Chinese business could be around $300 million to $350 million, or 1.5% of total expected 2010 revenue. But Citi doesn't see any noticeable impact on the company's bottom line, as they expect Google to post $27.12 non-GAAP EPS in 2010.

  • UBS has an interesting take on how Google's troubles may lift Baidu (BIDU) shares. Even if Google doesn't pull out of China, UBS thinks advertisers will have concerns about spending with and sees this as a victory for Baidu -- it upgraded the stock to Buy from Neutral and raised its price target to $523 from $380.
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