GOOGLE SQUEALS

The eight hundred pound gorilla oinks!

Last month saw a significant up-tick in Google’s market share for search in the United States. A whopping 70.77%, sourced from Hitwise, representing a year-over-year increase of ten percent, banked off of the declines for both Yahoo and MSN during the same period.

Click graph to expand

How much higher can Google’s market share go? Some analysts expect Google to hit one hundred percent, effectively monopolizing search (if it hasn’t already done so). At that level, according to a Credit Suisse analyst, Google may well be on its way to a $900 share price. Has the search engine turned from a heavyweight gorilla to a monopolistic piggy? Or is it all Wall Street hype?

Who are these analysts and what methods of madness are they utilizing to assume that Google will be permitted to reach that stratospheric target for search? Analysts argue that the cost of maintaining technology to keep pace with Google will be too restrictive to support a viable business model. That’s a doubtful scenario.

Assuming a “counterintuitive” position, I believe market forces will eventually dictate a realistic valuation for Google, bringing it down from the giddy heights it’s enjoyed. Certainly not $900 and not even $400. Generously, a market cap of $90 billion and a stock price of $290 could easily be realized by 2010.

In a four month period beginning November 2007, Google’s share price plunged from a high of $741 to $413; a drop of 45 percent. History will repeat itself, but for different reasons next time around.