Shares of Internet service Google, one of this fall’s hottest stocks, advanced modestly in after-hours trading Thursday.
The muted late-hour enthusiasm was a bit surprising in light of the company’s better-than-expected third-quarter results, issued after regular Nasdaq trading.
In recent weeks, Google exuberance has been a significant offset to widespread pessimism about the housing recession and global credit crunch. Shares climbed to nearly $650 late Thursday from $567 at the end of September.
Whether or not Google’s third-quarter numbers will contribute to another surge in tech shares remains to be seen. The mild instant response reflects two factors that investors need to keep in mind.
First, the most accurate analysts in forecasting Google revenues and profits also have been the most optimistic. Chief among them is Brian Bolan of Chicago-based Jackson Securities.
Bolan had estimated Google would post operating earnings per share, not counting the expense of stock-based employee compensation, of $3.90 a share. The consensus estimate of analysts tracked by StarMine was $3.78. The company reported $3.91.
“The net revenues were just 1 percent greater than I expected,” he said. Net revenues totaled $3.01 billion, compared with his forecast of $2.99 billion. The StarMine consensus was $2.94 billion.
“I’m one of the highest on the Street,” Bolan said. “I’m pretty happy with that. It’s a pretty good quarter, when I look at how aggressive I am toward Google.”
For example, Bolan was not concerned by Google’s strong hiring in the third quarter.
Google hired 2,130 employees, for a total worldwide employment of 15,916.
When second-quarter results were announced, analysts complained that hiring reduced Google’s profit margin.
“They are still in such a growth phase, I would expect hiring increases to continue,” Bolan said. “In a growth company, that is not at all what you should be paying attention to.”
The second factor in evaluating the stock market’s instant response to Google’s third-quarter report is the fact that the company does little or nothing to guide analysts in estimating future results.
The conference call late Thursday was typical.
What did Bolan learn on the call? “Very little,” he said. “I’m going to have a real hard time writing this report. I’m looking at my notes, and I have very few full sentences. There was very little meat here.”
In particular, officials offered no information about widespread speculation that Google will develop its own mobile phone, already dubbed the G-phone.
Upbeat results in advertising revenues from mobile phone applications by Google in Japan and Korea, where cell phone technology and usage is more advanced than in the U.S., suggest the company might develop its own product, Bolan said.
“If Google is getting ads delivered there and doing well, that bodes well for the idea of the G-phone to come around and especially to come here,” he said. A G-phone could be sold as a blend of the BlackBerry and the iPhone, he said.
“If Google can sit in the middle of both, you would have a real product” that would make even a $750 stock price target look woefully conservative, Bolan said.
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