Numbers aside, Bing’s design and functionality has surprised search enthusiasts.  Its sleek and appealing website has drawn accolades from critics comparing it to Google’s sterile, utilitarian page.  Bing has also won points with critics with its video search which allow users to preview videos on the search page before viewing them.

Some of its biggest kudos have been for its air fare search feature that advises users on when to buy a ticket to get the best price.  In terms of pure search, however, Google still has the lead.  While Bing has some great features for refining search result, a number of blind experiments show that Google still has a slight edge in terms of getting users the information that they need the first time that they conduct a search on any given subject. Bing’s improvement over Microsoft’s earlier search efforts is clearly allowing it to chip away at Google’s growth in the search market.

Google’s Year Over Year Growth In Search Market Share, December ’08 through December ’09:

Source: comScore

Overall search activity in the United States was up 16.5% in December over the same period last year.  Google’s search traffic was up 20.5% while Microsoft’s search traffic (using Microsoft’s pre-Bing search platforms for comparison) was up 49.3%.  With both search engine outpacing growth of the overall search market it is clear that they are both taking market share from the competition.  However, Bing has undeniably checked Google expansion.  Google’s year-over-year growth in market share has dropped from 5.69% during the month of Bing’s release to 3.46% in December of 2009 (see chart above).

Microsoft’s approach to entering the search market with Bing has not been all that different from its forays into other areas.  As with gaming and web browsing, Microsoft has been willing to bleed cash for as long as it takes to establish itself and outspend its competition.  Microsoft offers a Cashback program with rebates for some items purchased through Bing searches.  Microsoft has also spent upwards of $100 million on advertising Bing.  So far these efforts seem to have worked.  If you ask Steve Ballmer he is sure to tell you that Microsoft intends to be number one in search.  It is unclear if any amount of money can ever get him there.  Google spends next to nothing advertise its own search because its has the benefit of being a cultural phenomenon.  Given the impact that Bing has had already it is not inconceivable that Microsoft will go from hindering Google’s growth to grabbing its market share.  That would be remarkable based on the history of the search engine business over the last five years.

Garrett W. McIntyre

Jabil Circuit Inc. (NYSE: JBL) rose over 14% to a yearly high of $17.13 after the electronics manufacturer announced a first quarter profit of $0.32 per share, beating analyst estimates.

Progress Software Corporation (NASDAQ: PRGS) rose over 10% to a yearly high of $28.50 after the business software developer announced earnings of $0.61 per share, beating analyst estimates.

Garrett W. McIntyre

Reuters says the the Justice Department has hired a litigator to look into antitrust issues at Google (GOOG).

The Boeing (BA) strike is having an impact on suppliers and customers around the world, according to Reuters.

Reuters reports that Nokia (NOK) is looking for more acquisitions for its internet business.

The Wall Street Journal reports that BG Group said it will let its offer to buy Australia’s Origin Energy lapse, a day after the target company agreed to sell a half share of key assets to ConocoPhillips (COP)

The Wall Street Journal reports that the CEO of Ford (F) is expecting help from the US government.

The Wall Street Journal reports that a survey of hedge funds shows 35% lost assets through August

The Wall Street Journal reports that O3b Networks plans to launch as many as 16 satellites to bring internet to hundreds of million of poor people.

The New York Times reports that the firing of the head of VMWare (VMW) is still hurting the company.

The FT says that the oil minister of Saudi Arabia cast doubt on a production cut at OPEC.

The FT reports that a new survey of companies shows 43% are cutting their rate of IT spending.

Douglas A. McIntyre

This stock has been on a rampage with shares up roughly 10% this month alone, and shares are up 20% since the end of August.  But the October 11 highs over $640.00 have been acting as resistance in the recent trading days. 

• This one of Cramer’s "New Four Horsemen of Tech" 
• Cramer recently commented about Google stock heading to $750 (and even had $900 on his hands). 
• Google might not be in a bubble, but the action in Baidu.com might give investors some caution. 
• We recently noted what Google would look like at $700 at the current consensus estimates. 
• Google is planning big hires in Europe.

Options expire tomorrow, but it appears that as of mid-morning that options traders are braced for a move of up to about $20.00 in either direction.  The cost of an at the money $630.00 Straddle would run over $34.50 on last look.  At the end of September there were 6,626,105 shares listed in the short interest according to NASDAQ.  International revenues were 48% last quarter, up from 42% in the June 2006 quarter and up from 47% in the March 2007 quarter. 

As a reminder, last quarter the company had a slight miss on earnings and much of the blame was on the costs of adding personnel.  Its last headcount was 13,786 full-time employees (not counting contractors) at June 30.  The company has already tried to warn traders about expense growth exceeding revenue growth, so if any analysts come out with "we are disappointed with expenses growing fater than revenues" then they aren’t reading the filings and aren’t listening to what the company says.  Last quarter had a $62 million transferable stock option charge and Google has already disclosed that it sees an additional $160 million charge being spread out in the coming four years.  As per the last quarter filing: "As a result of all of the above, the growth rate of our costs and expenses may exceed the growth rate of our revenues in 2007…..  We expect our cost of revenues to continue to increase in dollars and may increase as a percentage of revenues in 2007 and in future periods, primarily as a result of forecasted increases in traffic acquisition costs, data center costs and credit card and other transaction fees, including transaction processing fees related to Google Checkout. In particular, traffic acquisition costs as a percentage of advertising revenues may increase in the future if we are unable to continue to improve the monetization of traffic on our web sites and our Google Network members’ web sites, particularly with those members to whom we have guaranteed minimum revenue share or other payments."

We are releasing the first part of our "Small Cap Internet Watch List" Friday for our subscribers of the "Special Situation Investing Newsletter" from 24/7 Wall St.  We do not believe these are all going to be active takeover candidates, but we feel under the right circumstances that these could be acquired By Google, Microsoft, Yahoo!, AOL, IAC/Interactive, or a dozen other US and international media players.  In this we’ll offer insight, related deals, potential parents, and even potential values down the road.  Companies that have been on this list (and as our BAIT SHOP candidates) that have been acquired are 24/7 Real Media, aQuantive, Web.com, and DoubleClick when they were all public.

As a reminder, Google does not offer guidance in its calls.

Jon C. Ogg
October 18, 2007

Jon C. Ogg
October 10, 2007

• Based on $15.25 EPS and $11.5 Billion revenues for Fiscal 2007 estimates, shares trade at 45.9-times earnings and 19-times forward revenues.
• Based on $19.50 EPS and $15.75 Billion revenues for Fiscal 2008 estimates, shares trade at 35.9-times forward earnings and 13.87-times forward revenues.

Just last week, Jim Cramer said he was giving this one of the new four horsemen of tech a $700 target, and then said $701 to be higher after Bear Stearns raised his 2007 target to $625.00 and $700.00 for 2008.  These numbers start getting quite high even for a great growth stock, but this assumes no raised revenue and earnings projections out of Wall Street and out of the company itself.

We are getting ready to release our "watch list" of small cap Internet stocks to subscribers of our Special Situation Investing Newsletter.  We do not believe they are current takeover targets, but under the right circumstances and prices these could all easily become subsidiaries of the current Internet giants.

Jon C. Ogg
October 8, 2007

• At $100 in 2004, shares ran to $200 in NOV-04.  Shares faltered around $200 until April 2005.
• At $200+ in April 2005, shares ran to $300 by June 2005. Shares used $300 as a magnet until October 2005.
• At $300+ shares made it to $400 by the end of 2005.
• At $400+ at the end of 2005 it took the stock until November 2006 for shares to hit the $500 mark.
• At $500+ at the end of 2006 shares have traded as low as under $450 in early 2007 and in this last major push shares are just today under that $600 mark.
• This is one of Cramer’s "New Four Horsemen of Tech" and he’s calling for higher.

These "$100" increments, let’s call them century marks, do act asmagnets and then as resistance.  Or at least that has been the caseuntil today.  If you pretend that $600.00 is already here, Google wouldhave a $187.25 Billion market cap and would have forward multiples of:

• Basedon $15.25 EPS and $11.5 Billion revenues for Fiscal 2007 estimates,shares trade at 39.34-times earnings and 16.28-times forward revenues.
• Based on $19.50 EPS and $15.75 Billion revenues for Fiscal 2008estimates, shares trade at 30.76-times forward earnings and 11.88-timesforward revenues.

Based upon the ongoing strength anddemographics holding up for Google, these revenue numbers may beunderestimated if the company can convert more of its free services andrecent acquisitions into direct subscriber or ad-based dollars.  On theearnings front, it seems that the only real issue affecting the companyearnings is whether or not the company hires too many people on itspayrolls or makes too much cap-ex spending on bandwidth and hardware.Advertising on traditional papers and TV may be slowing, but it willtake a significant slowdown for advertisers to slow web advertising(even with less real estate, gambling, and auto ads).  See, Google’s online video dominance and see its Dominance in August.  We started discussing the impacts of a Google Phone back in March, but this has been addressed to death since then.

Earnings are only sixteen days away on October 18, and that in andof itself is going to act as a catalyst for added volatility.  Optionsexpire on October 19, and The $600 CALLS look to have closed out at$10.70.  If the stock whips around more and more until earnings, youcan expect that to perhaps defy and maybe even go against the usualtime value erosion for more normal stocks.

The highest knownanalyst target out there is $700.00 from ThinkEquity and many of theexisting targets out there are right around the $600.00 and higher withtwo other key notes showing UBS $655, Goldman Sachs $625, and Lehman $610.  You could always see the analyst "downgrade on valuations" also come into play, but we won’t go there because analysts could just as easily raise targets at the same time.

Aslong as the market doesn’t give an unexpected October crash or fallapart and as long as the world doesn’t change drastically overnight,Google shares should pass $600.00 on any real market strengthcontinuing.  It isn’t the barrier for the speed of light or anythinglike that.  But after that, history would be on the side of someadditional whipsaws around the $600 handle if this threshold ispierced.

Other recent notes of interest:

• Baidu (BIDU) Market Cap Now One-Third Of Yahoo!’s
• Facebook is the new Skype…..
• Short sellers were very mixed on web stocks most recently.
• Is Yahoo! better off as two companies?
• Can Google Buy-off Europe?

We are getting ready to release a large portion of our "Watch List" small-cap Internet stocks for our "Special Situation Investing Newsletter" readers.

Jon C. Ogg
October 2, 2007 

Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.

This morning, InfoSpace (INSP) announced it is selling its Switchboard.com and other online directory assets to Idearc, Inc. (NYSE:IAR).  Idearc is paying $225 million from cash and short-term borrowings.  Shares of InfoSpace are up about 24% pre-market at $16.50, still in the lower-end of the $12.56 to $27.76 range over the last year.

unfortunately, InfoSpace hasn’t been profitable and analysts have been looking for losses in both 2007 and 2008.  It is also expected to see declining revenues.  As of June 30, the company had $197.79 million in cash and short term investments and total liabilities of $72.29 million; net tangible assets were listed as $350.89 million.  Its market cap before this was listed as $439.5 million, so an an interpolated basis it would have a new market cap of $550 million.

This is part of the Board of Directors’ ongoing review of our company and the opportunities available to enhance value for shareholders.  Upon completion of the transaction, InfoSpace expects to return the net proceeds from the sale to shareholders as a special cash distribution.  At closing, InfoSpace’s cash position is expected to be in excess of $400 million.

Jon C. Ogg
September 17, 2007

Raised dividends are usually a good thing, but it also shows the stage that the software giant has entered and we’d rather see more ‘special dividends’ rather than a small incremental boost.  If you have read our take on things, you’ll know that this move is one we don’t have the world’s greatest opinion of.  The classical investing model shows that raised dividends lead to higher stock prices, but it also shows that Microsoft is farther and farther away from being a growth stock.  I have even hijacked a phrase "Microsoft isn’t a major growth company anymore, it’s a utility stock!" from a friend of mine at the Federal Reserve.  But we still think it can take a path that leads to higher share prices.

If Microsoft wants to be impressive on its dividend, it should hoard cash and pay these special dividends.  At the end of 2004, the software giant paid out a $3.00 special dividend.  Shares actually traded flat and lower for basically a year after that special dividend, but in the longer-term shares reached over $31.00 earlier this year.  The truth is that the two are unrelated.  The tie isn’t even relevant.  But this is the best way of returning cash to shareholders in what is currently a most tax efficient manner.  We don’t know if the dividend taxes or capital gains taxes will really go up after 2008 or not, but depending on election results there could be some big changes there.

As of June 30, Microsoft held $23.4 Billion in cash and short-term investments.  It also held over $10 Billion in longer-term investments, part of which are stocks in other large public companies.  It holds $8.3 Billion carried under ‘other’ and long-term debt, and its other $23.75 Billion in liabilities are all day to day operations.  After this, you have to back out the $6 Billion or so that the company paid for aQuantive that closed in August.

The company can do share buybacks, but with the size and average daily trading volume it just requires too much capital spent for it to make much sense.  Microsoft has roughly 8 Billion shares in the float and has 9.375 Billion shares outstanding.  If you do the math and do the projections out there for its earnings this year and next, the company could do a serious return of capital.  If investors know that every other year they might receive a $1.00 or higher special dividend they might get more excited than if they receive the $0.11 every quarter instead of the $0.10 previously.  The company should consider this for later in 2008.

The only reason the company wouldn’t want to do this is if wants to go make more and more multi-billion dollar acquisitions like aQuantive.  If it wants to do that, then all bets are off.  This special dividend versus a slight hike in a low normal dividend is also purely a matter of opinion.  Microsoft has been hampered by the likes of Google (NASDAQ:GOOG) and others, and the new virtualization efforts from it and VMware (NYSE:VMW) are going to end up being a mere footnote on a relative basis to Microsoft’s size for the next 12 to 18 months.  We also saw some of the plans in May for a post-Gates era.

We still think Microsoft can reach the mid-$30′s over the next 12 months if it can execute on its many initiatives, and the downside seems less than than the upside at current levels.  The problem is that we had the same viewpoint back in January when we laid out the path that could take Microsoft shares to $36.00.  A myriad of things can change that, and the calendar and upcoming industry trends will determine which side of the crystal ball is accurate.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

• Cisco Systems (NASDAQ:CSCO) is going to keep delivering and he has broken out of his past quiet-man role.
• Google (NASDAQ:GOOG) is just getting better and better after being held back a year, and it grew 9% year over year by comScore data. This is one of Cramer’s "New Four Horsemen of Tech" and he thinks it goes higher.
• Freeport McMoran (NYSE:FCX) is growing from everywhere outside the U.S. that has a lock on the copper market.
• Amazon.com (NASDAQ:AMZN) is another pick from his "New Four Horsemen of Tech" that just hit a new year high today.

Here are his Tight End picks from last night that have upside with dividend stocks.  Yesterday he also gave his "wide receiver picks" that are the aggressive big scoring stocks.  Monday night he gave his picks that were not defensive, but still the leaders as the quarterback.  But before that he gave his solid Defensive linemen picks that are defensive stock picks

Jon C. Ogg
September 12, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.