Google shares jumped nearly 9 percent in intraday trading Friday, as analysts chimed in with favorable reports following the company's strong third quarter performance.
Google climbed as high as $384 a share during the day, after reporting a stronger than expected third quarter on Thursday after the markets close. Google's rally marks its second consecutive day of gains, in which its shares have risen as much as 11.7 percent.
Analysts overwhelmingly gave Google a thumbs up in its ability to control costs in the quarter, aiding the company's ability to exceed analysts earnings estimates.
UBS Securities analyst Benjamin Schachter, noting he expects Google to exhibit strong cost controls going forward, increased his earnings estimates for Google to $19.80 a share from $19.18 a share for 2008, as well as bumping up 2009 estimates to $22.69 a share from $21.92 a share.
Jim Friedland, an analyst with Cowen & Co., noted that Google hired 519 employees in the quarter, compared with 1,830 a year ago. And capital expenditures stood at $452 million in the third quarter, compared with $698 million in the previous quarter and $842 million in the first quarter.
J.P. Morgan analyst Imran Khan also touted Google's ability to control costs, but he also expressed concern about Google's revenues going forward.
Said Khan in his research note:
We think the company benefited from progress made in increasing coverage and stronger than expected network revenue. Going forward, we expect the macroeconomic drag to be slightly offset by market share gains from other search engines and other forms of advertising media. However, as our economic outlook has deteriorated, we are lowering our (fiscal 2009) domestic revenue estimate to $11.9 billion from $12.6 billion.
Goldman Sachs also cut its Google revenue estimates for 2008 through 2010, as well as lowered its price target on the Internet titan.
Goldman dropped its Google revenue forecast to $15.8 billion from $15.9 billion for fiscal 2008, lowered its 2009 forecast to $18.2 billion from $19.4 billion and its 2010 to $20.6 billion from $23.2 billion.
Said Goldman in a research note:
Results did not tell us much about future revenue, as Google did not comment on intra-quarter trends except to highlight the consumer fascination with the financial crisis, which may or may not imply fewer commercial searches (more queries for gold bars, fewer for brokerage accounts?)...We reduce our price target to $520 (prior $650) due to slower long-term revenue growth and incorporation of stock-based compensation into our DCF (discounted cash flow).
Goldman, however, raised its earnings outlook for Google for 2008, citing tight cost controls and higher margins and a healthier free cash flow as a result. Earnings estimates were raised to $20 a share from $19.45 a share for 2008.
But given questions around Google's future revenues in a challenging environment, Goldman lowered its earnings expectations for 2009 to $22.20 a share from $22.46 a share, and in 2010 to $25.25 a share from $25.42 a share.