Google Bounces Back, Investors Buy Back In

In posting a profit well in excess of expectations, Google bounced back from the depth of investor doubt and shook off fears of an advertising slump, resulting in at least one analyst to upgrade the stock and several others to raise their price targets.

Google's depressed shares staged a stunning comeback Friday, the day after the company said it enjoyed a first quarter profit of $4.84 per share, well ahead of the $4.53 predicted by Reuters Estimates.

The results came amid a dismal 2008 for the company's stock, as it erased a 50 percent gain in shares achieved in 2007. Investors worried that Google was susceptible to a slowdown in online advertising caused by a US economy likely headed toward a recession.

Those fears were fueled by ComScore estimates that Google's ad clicks would increase by just 1.8 percent from 2007. But when Google reported that number to actually be 20 percent, it helped squelch fears of a slowdown and sent Google shares well up and comScore shares off as much as 5 percent.

As a result, Jefferies & Co. analyst Youseff Squali upgraded Mountain View, Calif.-based Google to "buy" from "hold." Squali kept a $600 price target, which would translate to a 34 percent increase over Thursday's closing price.

In other analyst news, Lehman Brothers's Doug Annuth raised his price target to $620 from $580 and kept an "overweight" rating, while Oppenheimer's Jason Helfstein also raises his price target to $620 from $600 and kept an "outperform" rating on the stock.

"We believe Google is executing well in terms of improving ad quality and driving higher price-per-click," Anmuth said in a note to clients.

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There was some sentiment, though, that the boost to Google shares came more from relief that the economic downturn may not be as bad as some fear, as opposed to anything outstanding in terms of the company's performance.

"It was sort of an uneventful quarter other than taking a major concern -- the economy -- off the table," Cowen & Co. analyst Jim Friedland said.

Google's first-quarter net income rose to $1.31 billion, or $4.12 per diluted share, from $1 billion, or $3.18 per share, a year earlier.

Gross revenue rose 42 percent to $5.19 billion, just ahead of Wall Street targets. By contrast, Google's revenue grew at a 63 percent rate in the same quarter a year ago.

Google's performance may strengthen Yahoo inits efforts to wring a higher takeover offer from would-be buyer Microsoft .

"This signals that the online advertising market is still healthy, which should help Yahoo get a better price for its company if it does decide to sell to Microsoft," said Peter Dunay, chief investment strategist at broker-dealer Meridian Equity Partners.

Google closed a $3.4 billion acquisition of ad technology company DoubleClick in March. The move strengthened its position against Yahoo and Microsoft in the market for online brand advertising preferred by corporate marketers.

-- The Associated Press and Reuters contributed to this report.