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Google Cracks $600; $Googleplex Next?

Tuesday, 9 Oct 2007 | 12:01 PM ET
Google
Google

Is there no end in sight for Google and its shares? Last week when the company was oh-so-close to $600, I wrote that price targets would be on the move now that the company was teasing investors with yet another key milestone on its journey to the stratosphere, and sure enough, Bear Stearns revised its 52-week target to $700 just two days later.

I also suggested that with so many unknowns swirling around the company, unlike Apple and Research in Motion , many analysts would likely want to wait until we got a little closer to the company's earnings release--which comes Oct. 18, to give us all new targets to shoot for. That didn't stop Banc of America Securities from issuing a $670 target this morning.

In his note this morning, Banc of America analyst Brian Pitz writes, "While it is clear that the Street expects Google to continue taking search share from its competitors, what impresses us is that Google's query growth seems to be accelerating."

But another, more important nugget of news comes from Google itself today: announcing that ads from YouTube clips won't be in a video format. Instead, they'll either be graphics or links running across the bottom of the video clip itself. And not all clips will feature ads. Websites that are members of AdSense will be able to sign up for the specific videos, or kinds of YouTube videos that show up on their sites, and everybody involved gets a piece of the action: the video's creator, sites that include the video on their pages.

Everyone.

Still don't know what kind of percentages we're talking about, but the message is clear: there is a complex and growing plan to start to squeeze money from the YouTube deal, finally, and that's gotta be great news for investors who have seen such a key property, with so much potential, languish. That alone might continue Google's ever increasing momentum.

Google has been getting so much attention because of its meteoric rise, but the fact is, the company didn't do all that much through September. It was a nice performer, returning 15% to 18%, but in Google terms, that isn't spectacular. But since September, this stock has been off to the races: shares are knocking up against a 40% gain in just a matter of weeks.

That could mean extraordinary volatility when the company reports in a couple of weeks. The Street got an unwelcome surprise the last time around when profit margins got slammed because of a hiring binge (1,500 new workers just on the quarter?) that no one was counting on. Since then, public comments from Eric Schmidt, and other Google execs, seem to indicate a new focus on controlling costs.

We'll see if new discipline reigns supreme at the company. If it does, that could offer a surprise that does exactly the opposite of what happened last quarter, and that could be even more good news for the company and its shareholders.

However, I'd also argue the point that if Google is still on a hiring tear, and it continues to hire at a surprisingly brisk pace, that's not such a bad thing. The company needs the fuel to power its growth. In this case, the fuel is qualified workers. A margin squeeze because of stronger than expected growth is hardly the same thing as a margin squeeze because the search market is slowing down. Nope. Google continues to be running at high RPMs, and it hasn't even shifted into the DoubleClick gear, assuming that deal gets done.

And along those lines: ValueClick is seeing some action today on takeover rumors. This follows Jim Cramer's mention last night on "Mad Money" that the company could be a target. I don't know. I might argue the other way on this one: Google snaps up DoubleClick. Then Microsoft buys Aquantive in a defensive mood, paying a huge premium for the privilege. Yahoo buys RightMedia, a much smaller deal but with the same kinds of potential. All the chairs in this game of Musical Mergers have been taken. Unless Yahoo wants to shell out another $4 billion for ValueClick to be an even bigger player. Yahoo's got enough issues; I can't believe they'd want to take on such a big integration at this particular time in its history.

Which brings me back to why ValueClick might be more valuable as an independent company. While Google and Microsoft and Yahoo all struggle with integrating their new big time purchases, both on technology and human resources fronts, ValueClick can continue on, business as usual, with no distractions. I've mentioned this before as the reason ValueClick continues to show good opportunities for investors. And if the stock climbs, that's the reason for it.

Meantime, Google is just a measly $7 billion away from a $200 billion market cap, well ahead of HP, Intel, IBM, and gaining on Cisco. Can you put a dollar sign in front of the number "googleplex?"

Questions? Comments? TechCheck@cnbc.com

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