Shares drop 8% after an analyst says Google will face more competition over the next 12 months.
November 5, 2004: 4:37 PM EST
CHICAGO (Reuters) - Shares of Google Inc. fell over 8 percent on Friday after an analyst forecast a sharp drop in the price over the next 12 months as the Internet search company grows more slowly.
The stock, which briefly topped $200 this week, traded as low as $168.55 during Friday's Nasdaq session. It finished down $15.35, or 8.3 percent, at $169.35 in one of its biggest retractions since going public at $85 in mid-August.
UBS analyst Benjamin Schachter, in a research note, said Google (Research) will face increasing competition from Microsoft Corp. (Research) as the fledgling Internet search media leader evolves into a technology company.
Google's mission is "to organize the world's information and make it universally accessible and useful," said Benjamin Schachter, a UBS analyst, in a note to clients. "This commitment to its mission potentially puts Google on a collision course with Microsoft," he said, indicating the stiff competition Google will face.
Schachter set a 12-month share price target of $160, just two days after Google shares hit a record high of $201.60. UBS initiated coverage of Google with a "reduce-2" rating.
Schachter said slowing revenue growth, pressure on profit margins in 2005 and an infusion of Google shares that will dwarf the number of shares now available to the public will likely dog Google's stock price.
Google's relatively small float, or number of shares available for public trading, has caused them to be volatile. Short sellers scrambling to cover bad bets by buying the scarce shares have also sent prices spiking in recent weeks.
About 27 million shares of Google are now available for trade, but nearly 10 times that number will become eligible in stages by February 2005, when restrictions on insiders selling shares are lifted. The next lock-up expiration is slated for Nov. 16.
"The UBS downgrade certainly got the ball rolling. That was the catalyst," Tim Biggam, chief options strategist with Man Financial, said in a note.
"The stock had begun to soften prior to today's downgrade. Today's drop in price has been met with very little meaningful buying. This is a good indication that the final leg of the rally that we saw in the beginning of the week has lost its steam," Biggam said.
Separately, UBS initiated coverage of Yahoo Inc. with a "neutral-2" rating and a 12-month price target of $37 a share, calling the shares "fully valued" at the current level.
Shares of Yahoo (Research) fell $1.31, or 3.5 percent at $36.35 on Nasdaq.
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