Please ensure Javascript is enabled for purposes of website accessibility

An $800 Google?

By Alyce Lomax – Updated Apr 5, 2017 at 5:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Google exceeds estimates -- how long can this go on?

Google (NASDAQ:GOOG) knocked the ball out of the park with its third-quarter earnings, and -- surprise -- analysts are readjusting their price targets on the stock to even headier highs. You thought $600 was steep? You ain't seen nothin' yet.

The search giant's net income increased 46% to $1.07 billion, or $3.38 per share. Sales increased 57% to $4.23 billion. Although the company's still on the hiring binge that resulted in missing Wall Street's estimates last quarter (it has hired 2,130 more employees for engineering, sales, and marketing slots), it was able to protect its profitability. One can't really complain about the $13.1 billion in cash, or that free cash flow was a whopping $1.1 billion, either. (You can review Google's quarterly numbers.)

Here comes the euphoria again -- today many analysts are coming out with new price targets, and $800+ price targets are among the high-end figures.  

I can admit when I'm wrong, and so far I've been wrong about Google, but the thought of investing in it still makes me nervous. Advertising may be Google's bread and butter, but given my concerns about quality of features and functions, I have to wonder if some of that focus may backfire (a similar concern I have about Time Warner's (NYSE:TWX) AOL). And if a recession does come -- and I'm thinking that's not an "if" proposition, given all the signals  -- advertising will slow down. I'm not sure why people think things are different this time.

Google has hungry competition in the likes of Yahoo! (NASDAQ:YHOO), IAC/Interactive's (NASDAQ:IACI), and Microsoft (NASDAQ:MSFT). And I'm also uncomfortable with the fact that beyond core search, Google still hasn't gained much traction, despite its steady progress in new products and acquisitions.  

It's true. I've missed Google all the way up. I salute those who have made big bucks off this Internet advertising juggernaut, and I acknowledge the fact that they were willing to take on what I considered a great deal of risk for this growth story. I admit Google's growth is astounding, and that it may not even look that overpriced at the moment, given the kind of numbers it's been reporting. But how long can it keep it up? That's the part that always bugs me.

For related Foolishness, see the following articles:

Yahoo! and Time Warner are Motley Fool Stock Advisor recommendations. Microsoft has been recommended by Motley Fool Inside Value. Try either newsletter for 30 days to read the original recommendations and to see our views on the companies now. It's free, you have nothing to lose.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy that doesn't pick favorites unless it's chocolate.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.