Google, Comcast outlay a concern

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NEW YORK -- Internet bellwether Google Inc. and cable giant Comcast Corp. reported strong fourth-quarter results that blew past expectations in key areas last week. But their stocks came under initial pressure as investors seemed concerned about increased investments in developing businesses.

In the case of Google, fourth-quarter revenue exceeded Wall Street expectations, but its bottom line was just in line with estimates due to investments in new products.

In the end, though, many Street observers lauded the company for looking ahead and building future businesses.

"Google's market share gain is driven by investments in new distribution partnerships, headcount and infrastructure," Jefferies & Co. analyst Youssef Squali said in a report. "These investments are crucial to supporting new opportunities like social networking, video, mobile and radio, which are key to Google's long-term growth."

He raised some of his financial estimates for Comcast upwards, reiterated his "buy" rating and boosted his price target from $520 to $600.

Similarly, Goldman Sachs analyst Anthony Noto said: "We recommend buying Google with 25% upside to our year-end price target of $620," which he argued is "conservative" and could well end up being $670.

In the case of Comcast, 2007 guidance for capital expenditures that came in well above Wall Street expectations dragged down the stock, even though management emphasized they will spend the capital to sign up more users to its various services than in 2006.

Analysts came to Comcast's defense, saying the spending will allow the cable operator to gain a further edge over satellite TV and telecom rivals.

"We estimate the returns on invested capital (25%+) justify the spending," said Merrill Lynch analyst Jessica Reif Cohen. "(This year) represents a unique and compelling opportunity for Comcast, the country's largest cable operator, to capture market share, solidify its existing base and position the company longer term to capture an increased share of consumer leisure/communication spend."

She cited the example of Cablevision Systems, which "aggressively rolled out the triple play (product bundle) in 2004 prior to the launch of Verizon's FiOS video service, achieving industry-leading digital penetration" and thereby providing "an apt road map for the efficacy of Comcast's strategy."
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