BY THE NUMBERS
Google itself has been clear that its biggest priority for now is the mobile device battle with Apple, which Executive Chairman Eric Schmidt called the "defining fight" of the high-tech industry.
The Android operating system accounts for 56 per cent of the market, according to Strategy Analytics, but it is losing share to one-time partner Apple, which surged from 23.2 per cent market share in the second quarter of 2012 to 33.2 per cent a year later on the back of strong sales of its iPhone 4S.
And the deal for Motorola, its largest-ever acquisition, will remain under scrutiny until the division can turn a profit.
"It seems like every new business they've gone into has diluted their net income. Shareholders would like to know how they're going to get paid," said Forrest, who expects Google's recent share gains to level out for the rest of the year.
"The biggest beneficiary of people adopting Android is Microsoft, because they get paid an $8 license (per device) for their patents."
COST PER CLICK
Some, however, see a lot to like in Google's prospects.
The company dominates search, and processes a full two-thirds of all Internet queries in the United States.
Google also seems well-positioned to adjust to a sweeping change in consumer behavior that is afflicting its peers. People are spending increasing time on their smartphones and tablets, but advertising rates on mobile devices command only 56 to 71 per cent the price of ads - or "cost per click" - on laptops and PCs, according to an Adobe Systems Inc study.
Google appeared to suffer a blip in the second quarter, when it reported a 16 per cent decline in its search ads' "cost per click" compared with a year ago, but analysts say the long-term forecast for Google's mobile transition remains upbeat.
With the help of its AdMob acquisition, completed last year, and the rise of video advertising on its YouTube platform, Google seems well-positioned.
Rising advertising rates for mobile searches and earnings growth rates of over 20 per cent over the next two years could make the company's shares worth $1,300 in 2014, assuming a 15 times earnings multiple and factoring in cash, argued Browne, who owns shares in his $2.1 billion Thornburg Value fund.
He said desktop searches should account for about 70 per cent of Google's total ad revenue, followed by display ads at 15 per cent and mobile searches at 10 percent.
"We give them zero credit for Motorola, assuming no big profits and no big losses," he said.
While his estimate is not as lofty, Paul Meeks, an analyst at Saturna Capital who covers technology for the $2.2 billion Amana Growth Fund, said shares of Google should trade at $854, a 13 per cent jump from Wednesday's closing price of $755.49. He arrived at that price by assuming a 15 multiple on next year's projected earnings of $49 a share - a tad above Wall Street's current average expectations - and adding in $113 per share based on the company's large cash position.
"This is a company that starts with essentially a monopolist position in desktop search, and now through Android they are capturing more than half of the mobile ad revenue dollars," Meeks said.
But other investors in the company are preparing to pare back or sell their positions after the recent run-up.
"The stock is more fairly valued now than it was when we picked it up in the fourth quarter of last year," said Daniel Morris, who manages the $4.3 million Manor Growth fund. Google needs to show that it can wring profit from its growing number of searches for the stock in order to move higher, he said.
The stock also tends to rise and fall with an advertising market that is in turn tied to investor sentiment, said Steve Sorrano, equities analyst for Calvert Investments. He said that latecomers might not want to jump on the investor bandwagon right now.
"It's easy to get hurt if you own that stock too late in the cycle," he said.