Google Inc.'s stock price dropped by more than 4 percent Monday, accelerating a recent shift in sentiment that has caused once-ebullient investors to become more circumspect about the online search engine leader.
Barron's cast the latest pall on Google with an article outlining several risks that threaten to squeeze the company's profit margins and cut its market value in half.
The gloomy scenario further dampened investors' enthusiasm for Google, whose market value has plunged by 27 percent during the past month to wipe out nearly $40-billion in shareholder wealth. Google's shares fell $16.91, or 4.7 percent, to close at $345.70 on the Nasdaq Stock Market. The shares peaked at $475.11 on Jan. 11.
Since its stock reached that high, Google released a fourth-quarter earnings report that didn't live up to analysts' lofty expectations and alienated some of its users by launching a censored version of its search engine in China to adhere to that country's government restrictions on free speech.
Those developments have contributed to an abrupt change in perception about Google of Mountain View, Calif., which began 2006 as a widely revered Internet icon that seemingly could do no wrong as its shares soared from their August 2004 initial public offering price of $85.
Now, Google is increasingly being viewed as a company vulnerable to stiffer competition as well as its heavy reliance on advertising revenue growth that could taper off as companies become more sophisticated about online marketing.
Barron's piece, which warned Google's shares might drop to as low as $188, provided a textbook example of how the pendulum has swung against the company.
Many of the potential problems detailed in the Barron's article also loomed as possible pitfalls during 2004 and 2005, William Blair & Co. analyst Troy Mastin reminded investors in a Monday research note.
"While we agree that the company is facing more headwinds today than last year, most of the fundamental issues raised by Barron's are not materially different than 12 or 18 months ago," Mastin wrote.
Most other analysts echoed Mastin' sentiments, continuing to describe the recent downturn in Google's stock as a golden opportunity for bargain hunters.
"The simple takeaway is that Google owns the best fundamentals in the Internet sector," Citigroup analyst Mark Mahaney wrote Monday, reiterating his belief that the company's shares will bounce back to as high as $490 during the next year.
Another prominent Internet analyst, Safa Rashtchy of Piper Jaffray, thinks Google's shares will reach $600 by the year's end.
Google has continued to enthrall most analysts even as the company's management is ambivalent about Wall Street's opinions. "The company isn't run for the long-term value of our shareholders but for the long-term value of our end users," CEO Eric Schmidt said during an interview published in this week's Time magazine.
The early run-up in Google's stock price has been driven by Google's Internet-leading search engine, which has become the hub of the Web's largest advertising network. As more advertisers shift their spending online, Google's annual profit soared from $7-million in 2001 to $1.5-billion in 2005.
BIGGEST DECLINE IN A YEAR FOR STARBUCKS
Shares of Starbucks Corp. had the biggest decline in a year after UBS Securities LLC analyst David Palmer downgraded the stock to "neutral-1" from "buy-1."
Starbucks shares dropped 93 cents, or 2.6 percent, to $34.57 at 4 p.m. in Nasdaq Stock Market composite trading, after touching $34.07 for a 4 percent drop.
Palmer said in a research note Monday that Starbucks' shares had risen about 20 percent year-to-date and were trading near a five-year high for their price-to-earnings ratio, which may present some risk for investors if same-store sales growth slows.
Starbucks, the world's largest coffee shop chain, on Feb. 1 said January sales at stores open at least a year rose 10 percent, a rate chief executive Jim Donald said was "not sustainable." He said the company's long-term target remains increases in the 3 to 7 percent range. Seattle-based Starbucks' shares reached a new high of $35.63 on Feb. 10.
Starbucks is adding 1,800 new stores this year as it expands in fast-growing markets such as China. The company currently has 11,000 stores, and plans eventually to have as many as 30,000 locations.
- BLOOMBERG NEWS