Google curve ball

Accounting move throws market off

Google shares fell more than 28 bucks the day after reporting quarterly earnings last week, and many on Wall Street blamed it — at least partially — for a big slide Friday in the Dow, Nasdaq and S&P 500.

Of course Google's big drop only amounted to 5.2%, but it spooked investors who have come to expect a near-perfect financial performance from the world's premier new-media company.

Google beat revenue expectations but missed on profit due to bigger expenses than analysts had anticipated and due to a change in its accounting.

"Google apparently now accrues its bonus payments evenly throughout the year, instead of allowing the percentage accrual to ramp towards" the fourth quarter, said RBC Capital Markets analyst Jordan Rohan.

Rohan seemed irritated that Google didn't alert Wall Street to its change, but he still has a $560 target. Shares closed Monday at $512.51.

"Management's decision to surprise investors with the accounting change drove the stock's negative reaction," he said. "It served as a reminder that Google remains an unconventional company with chronic investor communications miscues and unorthodox decision processes."

He said he expects the stock to fall to about $480 "while investors debate the long-term implications of the earnings miss," so better opportunities to buy the stock should be forthcoming.

Others say don't wait.

"We advise investors to buy Google with 25% upside to our current $620 price target," Goldman Sachs analyst Anthony Noto said.

"Google's fundamental trends in the quarter after digging through the numbers still support 20%-plus long-term profit growth," he said.

JMP Securities analyst William Morrison reiterated his $625 price target, but he was a bit concerned about Google's expenses rising as a result of its adding 1,548 employees during the quarter, more than the company expected it would add.

On the other hand, he liked the fact that Google acknowledged that it spent more on talent than it wanted to and that management said it would scrutinize its headcount growth more closely going forward.

Bear Stearns analyst Robert Peck was the least impressed and cut his price target to $550 from $600.

"With fresh margin concerns and without any near-term catalysts to point to, we think the stock will experience summertime blues," he said.