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Rising expectations push Google stock higher

Sat., Oct. 21, 2006

SAN FRANCISCO — Google Inc.’s stock price surged to a nine-month high Friday, reflecting Wall Street’s deepening admiration of the Internet search leader as it continues to make extraordinary growth look routine.

The Mountain View-based company’s shares climbed as high as $460.10 before falling back slightly to close at $459.67, an increase of $33.61, or 7.9 percent, on the Nasdaq Stock Market. The run-up created more than $10 billion in shareholder wealth and left Google’s market value at $143 billion after eight years in business.

By comparison, 67-year-old Hewlett-Packard Co. — the world’s largest technology company — has a market value of $108 billion.

Google’s stock hasn’t been this expensive since the first half of January when the price reached its all-time high of $475.11. Most industry analysts expect Google to smash through that barrier soon, estimating the shares’ value at anywhere between $500 and $600.

Those lofty price targets look more realistic after Google’s third-quarter profit nearly doubled to $733 million, surprising even the most bullish analysts. Through the first nine months of the year, Google earned $2 billion on revenue of $7.4 billion.

The performance illustrates the substantial advantage that Google has built over its chief rivals, Yahoo Inc. and Microsoft Corp., in the rapidly growing online advertising market.

“We believe the company is rapidly becoming THE digital advertising agency for every company in the world,” Stifel Nicolaus & Co. analyst Scott Devitt wrote in a research note Friday. “If it succeeds, the financial returns could potentially be significant.”

Underscoring his confidence in the company, Devitt predicted Google’s stock price will hit $554 in the next year, up from his previous $500 estimate.

Google’s robust third-quarter growth, generated in the typically sluggish summer season, bodes well for the upcoming holiday shopping season when ad spending peaks. And if recently declining gasoline prices should fall even further, Google could profit even more as advertisers step up their pursuit of the extra money in consumers’ wallets.

The average analyst estimate for Google’s fourth-quarter earnings rose Friday by more than $30 million.


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