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This morning, the story is all Google (NASDAQ:GOOG).

Carrying through on last night’s robust after hours rally, Google shares are poised for a huge gain this morning, after the company reported much higher than expected Q1 results. (See transcript.)There are several factors at work. One, the stock had dropped almost $300 from its November peak in the mid-$700 range; this was a stock due for a rally. And two, the company at least temporarily has blown away concerns that search advertising will slow in the face of a deteriorating domestic economy. Google posted 20% year over year paid click growth, far better than the 2% or so indicated in ComScore’s (NASDAQ:SCOR) measurement of domestic clicks on Google’s search ads. While some analysts correctly had warned that ComScore’s data was incomplete and perhaps not good measure to use as a proxy for Google’s actual results, the numbers nonetheless have good as a nice surprise at a time when sentiment on the stock had turned gloomy.

That said, in some ways the numbers weren’t quite as good as advertised. UBS’ Benjamin Schachter notes this morning that the headline numbers “exaggerate the beat,” asserting that gross margins were 150 basis points below his target, and that higher interest income and lower taxes boosted profits by about 30 cents a share, accounting for most of the higher than expected profits. But he also rightly notes in a report this morning that “investors will be relieved that the revenue growth story remains intact and that estimates are increasing in the face of a difficult macro environment.”

Here’s a rundown on some of the other analyst commentary on the stock this morning:

  • Derek Brown, Cantor Fitzgerald: “We fully recognize that the party at Google has to end some time. Yet, we see no clear signs that Google’s business has hit the proverbial wall, or [that] consumers and advertisers are shifting their behavior away from Google and toward its competitors.” He maintains a Buy rating and $750 target.
  • Clayton Moran, Stanford Equity Research: He’s one of the few bears remaining. “While last night’s report provided relief that trends had not materially worsened, growth is slowing and margins are pressured. As such, we maintain a somewhat cautious view and a Hold rating.”
  • David Garrity, Dinosaur Securities: “With investor concerns proving overblown, we expect GOOG shares will trade back towards the upper end of its 52-week range over the course of 2008. With GOOG successfully decoupling from the sluggish U.S. economy (note that posting 31% year-over-year sales growth in the U.S. hardly qualifies as sluggish), it is likely that GOOG shares have seen their low for 2008. We recommend buying GOOG following the 1Q08 report.” Raises price target to $750, from $533.
  • Mary Meeker and David Joseph, Morgan Stanley: “Our conviction in Google’s 1-3 year business outlook remains high, with Q1 results providing an exclamation point. Reasons for optimism: despite relative maturity in search (and Google’s high share), Google’s strategy of fewer / better ads seems to be working, possibly making Google a beneficiary in a recession; DoubleClick acquisition should accelerate Google’s presence in online display advertising; YouTube usage growth continues to surprise on the upside; Google didn’t do something irrational and bid to win on 700Mhz spectrum as many seemed to be fearing.” Maintains Overweight rating.
  • Douglas Anmuth, Lehman: “Google’s stronger than expected top and bottom line performance in Q1 suggests that widespread concerns related to quality initiatives and the macro environment were overblown.” Target to $620, from $580.
  • Jeffrey Lindsay, Bernstein Research: “Despite growing doubts, Google brought in a strong quarter. ComScore’s paid click data proved to be a very poor indicator of Google’s paid search revenues, and improved pricing helped.” Keeps Outperform rating and $750 target.
  • Steve Weinstein, Pacific Crest: “GOOG shares remain an attractive investment. The company’s relative performance remains strong and there are significant potentials for new opportunities, such as display advertising, video and mobile, to drive upside to estimates.”
  • Mark Mahaney, Citigroup: “Q1 was a very trying quarter for GOOG shareholders. The stock went on a dramatic 25% round-trip. GOOG was at $527 in the aftermarket after Q4 results were released, descended close to $400, and closed this evening in the aftermarket at around $525. Recessionary concerns were one factor behind the hyper volatility. Select third party data indicating material Search fundamental deterioration was another…But that’s all history now…We are reiterating our Buy on GOOG Shares.”

There is certainly more where that came from, but you get the idea; this morning they are dancing in the streets of Mountain View.

Google this morning is up $86.43, or 19.2%, to $535.97.

Source: Google's Beat Goes On - With Some Cautionary Notes