Dr. P.V. Viswanath
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Google's Clout Grows With Price
Google Inc. shares skipped past $700 Wednesday amid investor enthusiasm
for its wireless and social-networking initiatives, extending a run since
mid-September that has made it one of the world's most valuable companies.
The Mountain View, Calif., Internet giant's $220 billion market capitalization as of Wednesday ranks fifth among U.S. companies, ahead of titans such as Bank of America Corp., Procter & Gamble Co. and Citigroup Inc. That's more than an eightfold increase since its August 2004 public offering, as the company has parlayed the small text ads it displays alongside Web-search results into a business whose revenue is expected to top $15 billion this year.
Google's 20% gain in the past month to $707 in 4 p.m. Nasdaq Stock Market
composite trading came amid news of strong financial performance and the
company's expansion into high-growth sectors: advanced software and services
for handset makers and telephone carriers to power mobile phones, and
new technical specifications for social networks that could undercut the
lead of Facebook Inc. and News Corp.'s MySpace.
Investors also appear to be looking beyond risk factors, such as the possibility of significantly slowing growth in online advertising and a more than $1 billion lawsuit filed by Viacom Inc. that alleges willful copyright infringement by Google's YouTube video-sharing unit.
Google executives have sounded bullish in recent weeks, reporting Oct. 18 that third-quarter profit rose 46% from a year earlier. But, they have also reminded investors that it is the company's core online advertising sales that are driving the business. Google still derives a big majority of its revenue from the text ads displayed on its own and partner sites, and executives have said recently they believe there is ample room to increase those core ad sales.
The company has started selling online graphical-display ads, such as
banners, and has extended its ad-sales efforts to print, radio and television
in the hopes of tapping the 92% of global ad revenue -- estimated at $450
billion this year by ZenithOptimedia -- that doesn't reach the Internet.
"Their excess and sustained profits in their core search business are so large that it gives them enormous latitude to experiment in mobile and display advertising, which are obviously very large markets," says Mark Mahaney, an Internet analyst at Citigroup, whose firm has done investment-banking business with Google and makes a market in its shares.
Some broader economic and market factors have swung in its favor. Google generated 48% of third-quarter revenue outside the U.S., boosting its results when they are translated into the sagging U.S. dollar.
"There's a scarcity factor," says Thomas Paulson, a vice president at Cornerstone Capital Management Inc., a Minneapolis money-management firm whose clients hold Google shares. "Good high-growth names, particularly large-cap ones, are pretty rare in the market."
Its shares rose more than 37% from its close Sept. 10, and despite the enormous run-up since its IPO, Google executives have maintained that there are no discussions about splitting the shares. Co-founder Sergey Brin recently offered one way to look at it. Investors "don't have to buy hundreds," he told a group of journalists. "They can buy one share."