Google shares set record, renewing valuation debate

SAN FRANCISCO - Shares of Web search leader Google set a fresh lifetime high of US$480.78 ($725.55) on Monday that followed last week's report of surging financial growth and Wall Street's upgrades on the stock.

Google shares jumped 4.6 per cent to close at US$480.78 on Nasdaq, surpassing an intraday trading high of US$475.11 set on January 11, 2006. The stock fell to lows around US$330 in March.

Google's market capitalization now exceeds US$146 billion, higher than more established technology leaders, including IBM , Intel or Hewlett-Packard.

The Mountain View, California company ranks 14th in overall US market terms, just behind Cisco Systems, at US$148 billion, but far behind No. 1-ranked Exxon Mobil, with a US$416 billion capitalization.

"Really the only major internet stock now that a lot of people want to own is Google," said Standard & Poor's equity analyst Scott Kessler, contrasting it to rivals such as Yahoo, eBay and IAC/InterActivecorp.

Nontheless, Kessler is taking a conservative view on Google stock. He downgraded his rating on Google stock to hold from buy, having only raised his 12-month target price on the stock to US$500 last week from US$435 previously.

Analysts said the nearly US$60 stock price surge in the past three trading days reflects rising optimism about earnings for 2007 and into 2008. But it also renews debate among investors on how to value a company enjoying rapid growth in a sector - the internet - with a short track record of sustained performance.

In its third-quarter report on Thursday, the company reported its quarterly profit nearly doubled and revenue rose 70 per cent it posted further gains in market share in its core Web search advertising business.

On Friday, Wall Street analysts raced to outdo one another in raising stock price targets on Google, with the most aggressive saying US$600 per share does not look extreme for the internet market leader.

On a stock-price-to-earnings basis, a current valuation around 40 times 2007 estimated earnings is consistent with where Google traded before its standout results last week, said Martin Pyykkonen, an analyst with Global Crown Capital.

Higher earnings estimates justify a target price of US$550, up from his prior trading goal of US$500, in Pyykkonen's view.

"It's basically the same multiple to anticipated earnings," he said.

Google's financial fundamentals justify a US$525, 12-month price target, Kessler said. But the relative performance and volatility of Google's peers in the internet stock sector support out only a US$465 target. His blended 12-month target is US$500.

Kessler estimates that Google's stock price is trading around 55 times his 2006 earnings forecast. Its internet peers, on average, carry a 43 times price-to-earnings (P/E) multiple, he said, including Yahoo with a 49 P/E and eBay at a 38 P/E.

- REUTERS