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Google shares still capable of big gains, firm predicts

By Published on .

Piper Jaffray & Co. sees a huge spike in the stock price for search leader Google this year. It predicts Google will fetch $600 per share by the end of this year from its current price of about $460 per share.

The prediction is part of Piper Jaffray's "Industry Note" published Jan. 3 and marks the first significant analyst prediction for the search engine giant.

"They are doing very well," said Safa Rashtchy, senior research analyst at Piper Jaffray. "The search market is growing very fast, and they'll probably continue to grow market share," he said.

Rashtchy said Google has been gaining share to a large extent from AOL and MSN, while other leaders Ask Jeeves and Yahoo! have maintained market share.

Google dominates searches by a wide margin, according to Hitwise, which tracks search engine market share data. As of Dec. 30, Google accounted for 44% of searches, while Yahoo! Search and MSN search capture 17% and 14% shares, respectively, according to Hitwise data. Google also holds the fourth position in market share, with 5% of searches conducted on Google Images.

The rate of Google's growth is also surprising, Rashtchy said. "They gained some share in 2005 that we didn't expect them to," he said, adding that Yahoo! is also doing well but is not growing as fast as its rival.

Rashtchy said the Google brand continues to strengthen as the company adds new products that extend beyond search.

A particularly strong year is expected for search overall. "Online advertising and search spending is booming and continuing its rapid growth," according to the Piper Jaffray report.

Internet stocks, the report said, will return 20% or more in 2006, well above the average for other sectors.

Search and online advertising stocks combined were up 22.9% in 2005, while e-commerce stocks were down about 22.6%, a weaker number than Piper Jaffray had initially predicted. Advertising services and e-marketing was up 18.3% in 2005.

"Google is pushing the industry to expand its offering and create better versions of existing applications, creating a much more dynamic industry where innovation is pushing forward at much faster speed than the past few years," Piper Jaffray said.

"The mere competition with Google to keep up the service levels is benefiting the customers and causing companies to improve their offerings significantly."

The $1 billion deal Google cemented with AOL, announced in December, was not a significant factor in Piper Jaffray's predictions.

"We didn't really take that into account as a major catalyst," Rashtchy said. "It's encouraging that they have the deal in place," he said. "They'll continue to have a wide network, and it gives them bigger potential to experiment with new products, especially in terms of advertising delivery. [However] it doesn't impact the numbers," he said.

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