Last November, investment bank researchers were putting out glowing reports
about the prospects of Google's
stock going forward, pumping the stock higher.
Credit Suisse analyst Heath Terry topped all others with a 12-month target
price of US$900, although three other firms put out targets of $850.
Some of these reports helped Google shares climb to their all-time high of
$747.24 on Nov. 7. But as of the close of Nasdaq trading Tuesday, Google shares
had sank to just under half the top prediction, $444.60, and down 40.5 percent,
or $302.64 from their high.
Henry
Blodget, famous for his analysis of Internet companies at investment banking
firm Merrill Lynch ahead of the dot-com bust in 2000, believes the shares have
further to fall as U.S. economic woes cut into the company's sales and investors
come to the realization that Google's growth is slowing down.
In a piece
written Tuesday for the Silicon Alley Insider, Blodget writes that the company's
stock faces the same problem now that Microsoft and other technology companies
have faced in the past. Once growth at these companies leveled off, their share
prices dropped.
That doesn't mean Google isn't a great company, nor does it mean Google's stock
price won't rise in the future. Indeed, Blodget predicts Google shares will
hit $2000 -- in 10 to 20 years.
What it means is that Google would have to find a way to make its ad, video
or other businesses generate revenue to continue the strong growth it's seen
over the past few years. Blodget believes Google's share price is nearing a
bottom, and it will likely trade at a multiple of 20 to 30 times its free cash
flow, down from as high as 50 times in the past.
Google faces other headwinds. On Tuesday its stock fell due to the departure
of executive and company veteran Sheryl
Sandberg. She joined Google in 2001 and was vice president of global online
sales and operations at Google before accepting the job of chief operating officer
at popular social networking site Facebook.
Some analysts see her departure as a sign people see better growth elsewhere,
outside Google. Such jitters sent Google's stock down 2.7 percent, or $12.42
during regular trading Tuesday.
The shares fell another $2.10 in after-market trade to end at $442.50 Tuesday.
