Google is Up and Wall Street Seems Bullish on Google, but Should it Be Bearish?

Google currently trades around $539 per share. It's competitors Microsoft and Yahoo! trade at around $30 and $28 respectively. It is clear to see why the clout of a change in Google price, quarter earnings or revenue effects the whole stock market psyche.

Based on reports from the Internet research firm comScore, which said that growth in Google ad clicks was slowing, analysts expected a small increase in per share earnings and a modest 3 and a half billion revenue. The market pessimism this engendered was dispelled when Google reported actual earnings of a little better than expected, coming in at $4.84 per share with a revenue of $5.19 billion.

Google has been leading the market in a not so merry chase lately but stock performance on Friday, April 19, 2008 added the merry back into the chase. Recessionary fears (which haven't vanished) in November of 2007 sent Google Corp. market price plummeting down from $741 per share to $449 per share. Since then, Google has pretty much stayed there, bouncing around under $460. Friday, on news of the better than expected earnings performance, Google shot straight up, trading as high as $547.70. At these prices and with this kind of clout, Google is strong enough to effect the market indexes on the short term and the bullishness on the long term.

In this case, though, a little bearish reserve, particularly regarding Google revenue health, may still be in order. Even though Google posts a first quarter (Q1) increase of 20% for ad clicks, over half of those clicks were from international sources. Also, in the fourth quarter for 2007, Google reported paid clicks that rose by 30% with less than half from overseas clicks. These statistics--51% of increase from overseas and 10% reduction on paid ad clicks--indicates that Google might not be recession-proof, even though Google executives have taken precautionary steps to improve clickable ad values and increase per click revenue.

When the battle for Yahoo! being waged by Microsoft Corporation is added to the mix, Google's effect on the markets may go either way. Microsoft is the strongest competitor Google contends with, yet Microsoft still lags far behind in market value in the $30 per share range and Yahoo! is even weaker at less than $30 per share. The speculation is that if Microsoft and Yahoo! combine, the mix will be greater than its individual parts and present a real challenge to Google, in its so far unchallenged position in the market place as search engine king. The future effect of Microsoft's possible purchase of Yahoo! at $31 per share (trading at $28) is heightened when the personal, though some say strictly professional, rivalry between Microsoft's Steve Ballmer and Google's Eric Schmidt is factored in: Schmidt has significant financial, professional (and personal?) reasons for preventing Microsoft's control of Yahoo!'s company. Certainly, if the purchase goes through, and if it changes the position of superiority enjoyed by Google (while half of its ad click revenue is moving overseas), the market, which already sways according to Google's advances or declines, may front a negative reaction to a Microsoft/Yahoo! challenge to Google.

Google Investor Guide:
http://www.investorguide.com/story.htm?guid={F9586AD9-FA62-489E-85F3-ACCE3B5F3CEB}&siteid=608B5FA1-67AA-45E1-894A-8AF28625B81C
http://www.investorguide.com/stock-archives.cgi?date=041808

Yahoo! Microsoft buy out battle:
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B54E7CC8C%2D5755%2D4BEE%2DB10E%2D80C34E078175%7D&scid=2&dist=partner
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B54E7CC8C%2D5755%2D4BEE%2DB10E%2D80C34E078175%7D&scid=2&dist=partner

Microsoft Yahoo! offer:
http://www.microsoft.com/presspass/presskits/msft-yahoo/default.mspx