Markets

Google: Ogler's Opportunity?

The Internet-search powerhouse took a hit after its quarterly earnings release. But analysts say it still holds promise for the long term.

To a market accustomed to being wowed by Google's moneymaking capabilities, the company's fourth-quarter results came as a shock. Profits, though 67% higher than in the last quarter of 2004, fell short of analysts' expectations, and the share price proved its potential for volatility, diving 7% on February 1. Some investors feared that the stock had lost its momentum.

For long-term investors, however, the price cut makes the Google story more interesting. Is this setback a good time to climb aboard the Google train? Many analysts say yes. The quarter's results "did nothing to change our outlook for the company," says Credit Suisse analyst Heath Terry, who recommends the stock (symbol GOOG).

Bear Stearns analyst Robert Peck takes a similar view, saying "this is a good time for investors who previously felt they had 'missed' Google to build positions." Although he acknowledges that Wall Street has lost some of its enthusiasm for Google in the short term, he says long-term investors should eventually be rewarded.

Analysts agree that the key factors driving the company's growth remain in place -- advertisers continue to boost online spending, and Google continues to increase its dominance of the Internet-search market. The company spends heavily on long-term projects. Analysts say its ongoing innovations -- expanding to mobile phones, developing video ads, and building a classified search business, to name a few -- should fuel strong earnings gains.

The company is also focusing on expanding overseas. Peck says international growth remained healthy in the fourth quarter. But UBS analyst Benjamin Schachter says it just wasn't up to snuff. And although he sees significant potential abroad, he's concerned that growth will take longer -- and require more investment on the part of Google -- than he previously thought. Schachter downgraded the stock to "hold" on Wednesday mainly for that reason.

Google's stock, which fell to $402 on Wednesday, is cheaper but hardly cheap. It sells at 45 times the $8.86 per share that analysts, on average, expect the company to earn in 2006.

--Lisa Dixon

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