When I last recommended Google in this column, I quoted a Chinese proverb: "With time and patience the mulberry leaf becomes a silk gown." That was in mid-July, with Google stock at $490 a share. Just before that it had dropped to $436.
Those silk worms worked remarkably fast, and it didn't take so much patience after all. Last week, Google (GOOG) said its third-quarter income jumped 32%, beating expectations, and the next day shares surged 11%, or about $60 a share, to over $600. I'm not sure I've ever owned a stock that gained $60 in one day, but then, I've never owned a stock as high priced, either.
I've owned Google shares since its initial public offering and have recommended it on several occasions since. I bought more Google shares this year, as I reported, in part out of admiration for its principled stand against censorship and willingness to stand up to the Chinese government. By and large, Wall Street, which is now rushing to boost earnings estimates and target prices for the stock, showed no such courage as it criticized Google for risking growth in the world's largest Internet search market. Shares slumped.
I readily acknowledge that Google's stand on principal has had little to do with its recent gains. China wasn't even mentioned in Google's earnings announcement. All the excitement was over what appear to be long-awaited payoffs in two big potential growth areas: mobile search and display ads. Google broke out those results for the first time, revealing that it had more than $1 billion in mobile revenue and $2.5 billion in display revenue. It also teased investors by disclosing that its YouTube video service is generating more than 2 billion monetized views per week, without saying whether YouTube is profitable.
Despite its recent surge, Google has not gained appreciably this year. In January, its stock was also trading over $600, and its high for the past year was $627. It's still far from the all-time high of nearly $750 a share reached back in November 2007, almost three years ago. So in that sense, long-term Google ownership has required some patience, even if more recent purchases are showing sharp gains.
Every time I recommend an investment based on something other than purely financial reasons, I get some criticism from those who find my approach fuzzy-headed and sentimental. Still, I think admiration for a company's management and its decisions can provide a long-term benefit for investors. Google's "do no evil" mantra may be ridiculed in some supposedly sophisticated quarters, but I believe it will also turn out to be a sound business strategy. When I heard the news that Google was investing in a huge wind-energy project off the East Coast, my first thought was, what does this have to do with the Internet or shareholders? And my second thought was, so what? I trust Google's leaders to do the right thing for their business and for the public at large.
I have plenty of exposure to Google, but I still recommend it, even at over $600. It pulled back a bit this week, so investors don't have to buy at the peak. The Internet advertising revolution is still in its early years, and my conviction that Google will be a major beneficiary is stronger now than when Google was trading at $750 a share.
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