By Steven Russolillo
In a development that should surprise almost nobody, Wall Street analysts remain fairly optimistic about Google after its quarterly results and 2-for-1 stock split.
A slew of analysts have raised their price targets after the company reported better-than-expected margins and growth in its core search business.
But the stock is selling off today as investors are focusing on some lingering concerns in the company's business model. For one, Google's revenue grew by 24%, which is slower than the growth rates achieved last year.
Additionally, the cost per click — the amount paid by advertisers every time a person clicks on their ad — fell by 12% compared to a quarter ago. This is a steeper drop than the 8% decline Google reported last quarter.
"The drop in click pricing was even more startling when compared to the click price growth in the first three quarters of 2011," said Colin Gillis, an analyst at BGC Partners. Those figures ranged from 8% to 12% growth. "While Google's CFO stated on the earnings call that 'Business is healthy,' we prefer to see both paid clicks and click prices growing in tandem."
Google shares were recently down 3.6% at $627.30.
The stock split has also raised concerns that it will ultimately dilute shareholders' influence. Here's how Dow Jones colleague Joan Solsman described the situation:
The twist is that the new shares will be a nonvoting class of stock. The distribution preserves the same level of control for Chief Executive Larry Page, co-founder Sergey Brin and Executive Chairman Eric Schmidt, who collectively hold about 66% of the company's voting power.
As a result of the split, though, shareholders will have twice as many shares but no additional influence, an issue that can intensify as more Class C shares get added over time, said MKM Partners event-driven strategist Keith Moore.
"Shareholders are generally aggravated their voting power will be diluted," he said.
Google shares are down nearly 3% this year, compared to a 17% rise for the Nasdaq Composite. While the stock has underperformed its peers this year, BGC's Gillis expects even more short-term pain ahead.
"The June quarter is historically one of the weakest for the company," he says, noting the stock has declined during the calendar second quarter over four of the last five years.
"We would look until later in the summer to get more positive on shares."
–Alexandra Scaggs contributed to this report.
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