Shares in Google, the web search leader, fell nearly 5 per cent yesterday after a report underscored concerns that its stock may be overpriced despite a recent pullback.
Google's stock is down 27 per cent from last month's highs after dropping $16.91, or 4.66 per cent, to $345.70 in Nasdaq market trade yesterday.
The latest drop follows a report in Barron's, the financial weekly, speculating that the web search company's stock could drop 50 per cent under a scenario in which it would fall well short of bullish analysts' 2006 revenue estimates.
Such a shortfall could stem from a range of threats, including competition from Yahoo and Microsoft, and the vulnerability to Google's advertising franchise from "click fraud" fake advertising transactions, the article said.
RBC Capital Markets analyst Mark Rohan said in a research note that there are "seasonal and fundamental reasons to believe that Google shares may continue to pull back", but added that shares are "much closer to the bottom than they are to the top".
"While some are blaming 'irrational' pricing in search," Rohan wrote, "we believe the key drivers are a sharp schadenfreude-driven shift in sentiment, the loss of financial momentum in the internet sector as a whole after a slew of uninspiring earnings reports, and the as-yet-undeclared fear of a seasonal pullback in internet stocks between now and August".
Still, some on Wall Street remained very bullish on the highflying stock, including Oppenheimer analyst Sasa Zorovic.
"We continue to believe the online advertising industry remains a powerful growth story and that Google enjoys a market-leading share position, gaining share from the competition in recent months," Mr Zorovic said in a research note, adding that the recent pullback represents a buying opportunity.
Mr Zorovic has a buy rating and $540 price target on the stock.
Meanwhile, Google's rival Yahoo yesterday sought to blunt criticism of its business practices in China in advance of what is expected to be a gruelling Congressional hearing in Washington tomorrow.
In a "statement of beliefs" Yahoo said it was "deeply concerned" by some governments' efforts to control access to the web.
But it said private firms alone could not bring about change and called on the Bush administration to do more.
