Google’s next stop: $600 a share?

Happy days at the Googleplex. Shares of Google (GOOG) hit a new 52-week - and all-time - trading high of about $535 on Monday afternoon. The stock is now up 15 percent so far this year and has gained a stunning 529 percent since its initial public offering in August, 2004.

Last week came news that Google (GOOG) increased its market share lead in search over Yahoo! (YHOO), Microsoft’s (MSFT) MSN, IAC’s (IAC) Ask.com and AOL - which, like this site, is owned by Time Warner (TWX).

And of course, Google, unlike Yahoo, doesn’t have to worry about pesky distractions, such as, say, an overhaul of the management team. Instead, Google can simply focus on staying on top in search and bolstering its presence in the so-called display advertising or rich media market, selling things like banners, videos and other non-text based ads.

A desire to become a bigger player in graphical ads was a prime motivation behind Google’s purchase of YouTube last year and agreement to buy ad serving network DoubleClick in April.

So where does Google go from here? Several analysts see another 20 percent upside in the near-term. William Morrison, an analyst with JMP Securities, raised his price target on Google’s stock Monday from $580 to $625.

Morrison wrote in a report Monday that he thinks Wall Street is actually underestimating Google’s growth potential. He currently expects Google to generate revenues, excluding ad sales it shares with affiliates, of $11.8 billion this year, compared to an average forecast of $11.4 billion. What’s more, he is predicting that Google’s sales will hit $16.1 billion in 2008 while the consensus of his fellow Street analysts is just $15.4 billion.

“The general thinking here is that Google’s already large size will likely pose a significant impediment to future growth. A converse perspective, which we hold, is that Google possesses significant competitive advantages that are directly attributable to its size, in particular its computing infrastructure, and that these advantages are likely to drive a higher growth rate for a longer period of time than most investors currently anticipate,” Morrison wrote.

And he’s not alone in this view. On Friday, two analysts at Wall Street firm Bernstein launched coverage on Google, as well as other big Net stocks Yahoo, IAC, eBay (EBAY) and Amazon (AMZN), with a $635 price target. The Bernstein analysts also said current Wall Street estimates on Google, for both sales and earnings, are too low.

It’s a dangerous game to expect Google to keep blowing away Wall Street’s estimates. But remember, this is a company that does not give guidance. And so far, analysts have proven to be fairly conservative in their assessment of Google’s growth potential.

For the past four quarters, Google has surpassed consensus earnings estimates by an average of 10 percent. Google has only missed forecasts once in eleven reported quarters as a public company.

With that in mind, as scary as it may seem to predict ever higher prices for Google, the stock still looks like a reasonable bargain. Shares trade at 27 times 2008 earnings estimates, not too frothy for a company that is expected to post a profit increase of 27 percent next year and 30 percent a year, on average, for the next few years.

In fact, Google trades at the lowest price-to-earnings growth (PEG) ratio, which is often used to measure rapidly growing companies, among the big five Internet stocks. Google’s PEG is 0.9. Only eBay is as reasonably valued on this basis, trading at a PEG of 1 on the nose. IAC has a PEG of 1.5 while the troubled Yahoo trades at a PEG of 1.7 And Amazon trades at 2.2 times its projected growth rate.

So say what you want about how new price targets for Google are reminiscent of the late 1990s bubble. But Google hasn’t shown any signs of stumbling. And until it does, the stock is going to keep heading up. Heck, it might not be long before more analysts start slapping a $700, or even higher target, on Google.

How Facebook could crush MySpace, Yahoo!, and Google.

There comes a time in every young person's life—soon after teething, usually—when she must make a momentous decision: MySpace or Facebook? One's preference is a matter of taste. MySpace, if you ask me, is a spam-infested state of nature. The average user page comes with a crapload of embedded music and video players, some seizure-inducing wallpaper, and a bunch of friend requests from "models" who want to "get to know you." (It also happens to be nearly three times the size of Facebook.) Facebook, on the other hand, is much less customizable but also a lot more reassuring. The interface is comfy, sturdy, and attractive without being showy—the kind of social network you'd bring home to Mom. Think of it as the Volvo of social networking.

But a few weeks ago, Facebook pulled a MySpace-like maneuver. The site tore down its walls and opened its pages to outside developers. A new tool kit called Facebook Platform allows any programmer—a bored student or a multimillion-dollar corporation—to peel back the site's breastplate, poke around, and rearrange the innards. None of the nearly 900 (and counting) programs released so far are particularly life-changing—among the most popular add-ons are a "Graffiti" program (downloaded by more than 3.3 million people as of this writing) that lets you doodle other people's profiles and an "Honesty Box" that lets your friends say, anonymously, what they really think of you. Collectively, though, these programs are hugely significant. If the site figures out a smart way to deploy these mini applications, it will be more than just a social network. Facebook will turn into a do-everything site with the potential to devour the whole Internet.

For all the hype about Second Life, Facebook and MySpace are already the closest things we have to "virtual worlds." Sure, Facebook doesn't have large-breasted 3D avatars and a sky and buildings and its own currency. But the whole point of the Internet is that you don't need all that stuff. If I want to buy something, I go to Amazon, not some virtual store. Even before Facebook allowed outside applications, it had millions of users who basically lived inside their profile pages. The typical Facebooker spends hours each day sending messages, posting "notes" or blog entries, and uploading photos, along with trolling for freshmen girls who love the Decemberists. Facebook Platform simply expands this world. (According to the Wall Street Journal, the site's user base has jumped from 24 million to 27 million since Platform launched.) Now you can check the local weather, feed and nurture a virtual pet rabbit, and see what music your friends are listening to. With just a few more additions—e-mail, an instant-messaging program, RSS feeds—Facebook obsessives will become total shut-ins. Users wouldn't have to venture out into the Internet; the Internet would come to them.

If Facebook does decide to become an all-encompassing portal, it would be a bit late to the party. Customizable homepages like My Yahoo! and iGoogle already let you cram your favorite Web stuff onto a single page; there's also the trendy start-up NetVibes, which Slate's Reihan Salam called "the ultimate mashup." But a Facebook homepage would have a huge intrinsic advantage: The social network is already built in. Sure, the other portals incorporate Gmail and BBC headlines and YouTube searches and podcast directories. By adding a social context to all of this content, however, Facebook would immediately trump its main competition. With Facebook's News Feed, it's elementary to see when your friends sign up for a new product or service. That means the best add-ons become viral instantly—Platform's biggest success story so far, a music sharing app called iLike, started growing at the rate of 200,000 users a day.

It's a certainty, too, that outside developers will fall over themselves to deliver great content to Facebook users. The site's growing audience, sterling reputation, and clean look are catnip for corporations.

What kind of stuff will companies offer to Facebook users? Every major corporation, it seems, is trying to add social networking to their core services. Netflix, for example, allows you to keep tabs on what your "friends" are watching. But it makes much more sense to peddle your services on a huge, prebuilt network—no wonder Netflix users can now check their buddies' queues on Facebook. And we're not only talking about businesses: Just look at Barack Obama's campaign. Thousands of users have downloaded the Obama Facebook application since late May, and hundreds of thousands more have joined Obama-themed groups. Compare that to the relatively paltry 70,000 registered users on the candidate's custom-made social network, My.BarackObama.com. Using the Facebook network as a delivery system, it seems, is easier and more productive than creating the system yourself.

For me, an influx of outside content seems like the obvious path to a bigger, better Facebook. But the recent deluge of applications has created a big backlash. I count 15 groups started in the past month, all variations on a theme: "Enough with the @$#%! Facebook Applications Already!" Even my friends have started complaining. When I added a 12^th application to my lineup—I think it was "Pets"—one wall-poster labeled me an "applications slut." Some of this sentiment, dubbed by one developer as "app fatigue," is just a product of the site's growing pains. But it also reflects a real frustration with Facebook Platform, a sense that it hasn't reached its potential. Most of what we've seen so far looks like refuse from an airport gift shop—cutesy Tamagotchi imitations and fortune cookies and virtual presents.

Don't get me wrong, I'm glad I can doodle multicolored genitalia on my friends' Graffiti walls. But come on, Facebook, where's all the useful stuff? It's reassuring to hear that Facebook plans to add a "wallet" feature for processing online payments. But for the site to really take off, it needs to have an instant messaging system as easy to use as Google's, as well as an embeddable inbox that connects to Hotmail, Yahoo!, and the like. The fact that Facebook hasn't introduced some sort of RSS feed for news—real news, not News Feed news—also borders on inexcusable. It's not clear to me why Facebook hasn't incorporated these seemingly essential elements, and neither their press office nor CEO Mark Zuckerberg (or the guy he probably pays to handle his profile) responded to my inquiries. But I'd be confused and disappointed if these projects aren't in the pipeline, especially considering the rumors that Yahoo! wants to buy MySpace. A merger of that size would dwarf Facebook at the outset. But in the long run, if there's going to be a supernetwork, I'd much rather have it be clean and navigable like Facebook than spam-filled and occasionally creepy like MySpace. If Facebook adds e-mail, IM, and RSS, it's one step closer to becoming as comprehensive as Yahoo! and as p

McAfee: Yahoo search most 'risky'

Search company has not sought to refute research from McAfee that claims Yahoo returns the riskiest results of the top five search engines

Out of the top five search engines, Yahoo returns the riskiest sites for users, according to security vendor McAfee.

In research published on Monday by McAfee SiteAdvisor, 5.4 percent of Yahoo searches returned links to "risky" internet sites. AOL was found to be the safest of the top five, with 2.9 percent of sites.

According to McAfee SiteAdvisor, Yahoo returned the most results rated "red" or "yellow". "Red" rated sites failed McAfee SiteAdvisor's safety tests. "Examples are sites that distribute adware, send a high volume of spam, or make unauthorised changes to a user's computer," said the report. Examples of "Yellow" rated sites are those which send a high volume of "non-spammy" email, display many pop-up ads, or prompt a user to change browser settings.

According to McAfee, overall, on Yahoo, MSN, Ask.com, Google, and AOL, sponsored searches returned more risky results than "organic" searches. Of sponsored searches, 6.9 percent returned risky content, compared with 2.9 percent of organic searches.

McAfee analyst Greg Day told ZDNet.co.uk that those wishing to make money from the spread of malicious code were willing to pay search companies, or try to trick them, to boost malicious ad rankings and increase the chance of click-throughs to malicious sites. "The simple reality is that, if you want to make money, you get to know how to trick search engines to get to the top [rankings], or you pay your way to get to the top," said Day. "On the straight figures, Yahoo is the highest level risky site."

McAfee stopped short of recommending that IT managers discourage company employees from using Yahoo search, but did say that the search company should employ more rigorous analysis of the content of sites returned by its search. "Google is starting to go away and do analysis of whether [site] content is what it claims to be. Yahoo really has to go down that road."

Yahoo said it already has a rigorous editorial policy on sites displayed by its search results, especially for sponsored results.

Reggie Davis, vice president of marketplace quality at Yahoo, told ZDNet.co.uk: "We have strict editorial policies in place, conduct ongoing editorial review and employ teams of product experts, engineers and analysts focused on ensuring and continually enhancing the relevancy of our sponsored search ads."

Davis did not seek to refute the McAfee SiteAdvisor research, or its ranking of Yahoo as the most risky search company of the top five. Instead, he stated: "Yahoo has been a strong proponent of helping fight malware, and is, in fact, the only major search vendor who makes free anti-spyware software available to its users. We support any efforts that help with the ongoing fight against unsafe sites."

Davis said that, according to the McAfee research, Yahoo's organic search results, "which represent the vast majority of clicked links for consumers, have the highest safety and quality rating of all major search vendors".

According to Davis, it is not in Yahoo's interest "to deliver experiences that would erode the trust of our users and advertisers, as we are committed to building the world's highest-quality online advertising marketplace and providing the safest and most relevant search experience possible for our users".

"We will continue to improve our performance in this area by investing in technology and work with third parties to make the internet safe for consumers," Davis added.

Story: news.zdnet.co.uk