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Stifel Nicolaus Internet analyst Scott Devitt upgraded Google yesterday from "sell" to "hold". Mr Devitt's upgrade is noteworthy, because he was bearish on Google going into earnings, a call that turned out to be correct, and has been subject to criticism by hedge fund manager Jeff Matthews. Excerpt from his upgrade note:

Google (GOOG, $381.55, HOLD): Regressing to the Mean: Raising to Hold
February 6th 2005

• We are upgrading Google shares from Sell to Hold given the recent modification to its public market capitalization. Since the peak of the "jaw dropping" euphoria leading up to Google's fourth quarter results, the shares are down by 20%. We continue to value the business at $400 per share looking forward twelve months and would be aggressive buyers around Pi or $314 per share, all else being equal. At current valuations and with a view toward the long-term, we prefer Yahoo! shares given the fact that Yahoo!'s enterprise value is approximately 36% that of Google.

• The risks to our fair value estimate include – (1) a management team with a "trust us" attitude, offering the public very little detail about its business despite its high profile, high growth, and $115+ billion valuation (in our view, transparency leads to more fair pricing of equity securities and if the company wants to be truly "unconventional," why not achieve this by giving us more rather than less information than its peers); (2) competition; (3) click fraud, it's real and, yes, it does matter; (4) fragmentation and proprietary content; (5) a lack of customer lock in or zero switching costs, and the possibility of changing customer preferences given the companies various political stances (current examples include China censorship and U.S. privacy); (6) the phenomenon of blogging and the associated cluttering of search results this has created in the Google network (there are now an estimated 20 million blogs and a search for blog on Google last evening returned 1.84 billion results); and (7) the continued support of its loyal investment following despite a quarter that could be the beginning of a "meet" rather than "beat" cycle as it relates to published estimates.

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Source: Bearish Analyst Upgrades Google From Sell to Hold (GOOG)