Everyday life catches up with internet darling

Memo to Google: Welcome to life as an everyday internet stock.

Shares of Google fell nearly 5 per cent on Monday and have lost a quarter of their value this month as the web search company that once could do no wrong faces up to the realities of a business that must face the bad with the good.

But despite several bouts of negative news that have knocked a stock once thought headed to US$500 ($745) back below US$350, most Wall St analysts remain sanguine over Google's prospects and advise investors to buy the stock.

The latest drop follows a report in Barron's, the financial weekly, that speculated the company's stock could drop 50 per cent under a scenario in which it would fall well short of bullish analysts' 2006 revenue estimates.

Several analysts rose to the stock's defence yesterday, saying that as Google's valuation has decelerated to a level around 30 times Wall St's consensus profit forecast for 2007, a common complaint about the share's price is gone.

RBC Capital Markets analyst Jordan Rohan said Google shares might fall to a base level of as low as US$330 but, at this point, was far more likely to rise than to fall.

For while investor debate rages over whether the company faces mounting competitive pressures or is merely suffering a temporary lull in confidence in the internet sector, some analysts say Google stock has hit a sustainable level that is far more in line with the sector as a whole.

Hoefer & Arnett analyst Martin Pyykkonen said the stock had undergone a housecleaning of its investor base as short-term, momentum investors had cleared out of the stock, leaving a more stable class of investor who might hold it longer term.

He believes the stock is likely to drift until the next near-term catalyst, which is the Analyst Day meeting set to be held at Google's Silicon Valley headquarters on March 2.

Google's stock is down 27 per cent from last month's highs after closing off US$16.91, or 4.7 per cent on the day, at US$345.70 on Monday on Nasdaq. Nonetheless, the stock has only fallen back to levels it first hit four months ago.

- REUTERS