Two Analysts Raise Google Concerns

After a year-plus of nearly continuous share price increases matched by equally lofty financial reports, a couple of stock market analysts think it's time to sell Google investments.

One said sell, the other said sell too. Neither analyst noted in Jonathan Berr's report at TheStreet.com displayed a willingness to follow the overwhelming majority of analysts who see shares of the GOOG trending ever upward.

Stifel Nicolaus analyst Scott Devitt told client Google is an "outstanding company" but its shares are "overvalued." He also cited the market's disappointment with Yahoo's earnings as an indicator of things to come:

"The company trades for 54% of the enterprise value of Microsoft and is expected to generate approximately 12% of the free cash flow in 2006," he writes. "Even great businesses have a value, and, in our view, Google's market capitalization exceeded its intrinsic business value long ago."

Scott Kessler of Standard & Poor's maintained that firm's price target of $428 per share for Google, but sees storm clouds gathering on the horizon:

"We think Google still faces notable risks, including a lack of revenue diversification, mounting competition and click fraud," he writes.

Google's corporate masters do have diversification in their sights. Recently the search advertising company announced the purchase of dMarc Broadcasting, a digital solutions provider to the radio industry.

Google plans to give its AdWords clients the opportunity to have their ads heard on radio stations, and will use the dMarc technology to help streamline the process as Google has for online ads.

The mounting competition cited by Kessler includes Yahoo and Microsoft. Yahoo has been slowly rolling out improvements to its online advertising, although a noticeable impact on earnings won't happen for another year.

Microsoft has June 2006 targeted for its MSN AdCenter launch, and the company has plenty of cash on hand to make AdCenter a loss leader should they decide to play for volume and erode Google's overall share of the contextual ad market.

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