Two-way street

Google, Yahoo! on divergent paths

Google put the exclamation point on its dominance over Yahoo! last week.

The Internet search-advertising king posted quarterly earnings that sailed past even the most optimistic of Wall Street estimates. A couple of days earlier, Yahoo! did the opposite.

Goldman Sachs analyst Anthony Noto reduced his price target on Yahoo! shares to $34 from $35 after the company posted earnings.

The stock closed Monday at $27.88, down significantly from where it traded before its earnings results.

For Google, Noto left his $620 price target intact and raised his earnings-per-share estimates for the company for this year and next. Google closed Monday at .

Even as Noto clearly likes Yahoo! stock a whole lot less than he likes Google, if his price targets are realized in the next 12 months, shareholders will get roughly the same return whether they invest in Yahoo! or Google.

JMP Securities analyst William Morrison said that "Google delivered growth across all of its key revenue segments" in the quarter. Of Yahoo!'s quarter, he said, "Results were in line with management guidance but fell below our estimates and consensus expectations.

The analyst rates Google "market outperform" with a $580 price target and Yahoo! "market perform" with no price target.

Not all analysts, of course, prefer Google to Yahoo! Jordan Rohan of RBC Capital Markets, for example, rates both stocks "outperform," though his $34 target on Yahoo! and $560 target on Google implies more upside for Yahoo! than Google over the next 12 months. Rohan acknowledges that Yahoo! reported quarterly results that lagged the expectations of some, but he expressed confidence that the company's new search technology, Project Panama, will lead to bigger growth toward year's end.

He also said he's impressed with the progress Yahoo! is making with its newspaper partnerships and he likes the company's new extended, cross-promotional deal with eBay's PayPal.

"We believe it makes sense to add to positions under $30," he said of Yahoo! stock.

He did, though, express concern that Yahoo! display ad revenue, up 20%, lagged behind page-view growth of 22%.

About Google, Rohan wrote: "We believe long-term investors should feel comfortable adding to positions at current levels. Short-term investors may prefer to wait until the inside selling window closes in June."
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