• by Wendy Davis  @wendyndavis, January 6, 2005

Google's market share for paid search in the United States could grow to 41 percent this year, from 37 percent in 2004, according to a report issued Wednesday by Merrill Lynch analyst Lauren Rich Fine.

The report also predicted that the total ad spend on paid search could climb to $10 billion by 2009, up from an estimated $3.4 billion for 2004.

"The growth of Yahoo! and Google these last two years leads us to believe that advertisers are truly beginning to understand the benefits of, and how to manage, online advertising," wrote Fine in the report.

Still, Merrill Lynch ultimately gave Google a "neutral" rating, concluding that its stock was "fairly valued." But the report highlighted some key Google strengths--including its very name, which is now used as a verb meaning online search. Also, the report noted that Google has made inroads toward selling paid search listings to local advertisers, such as by its October 2004 BellSouth alliance. The deal calls for BellSouth's online directory, RealPages.com, to sell Google Adwords to smaller businesses.

Fine estimated that Google's adjusted income from operations--adding back depreciation and amortization, stock compensation, and non-recurring items (EBITDA)--will reach $1.9 billion this year, reflecting a 54 percent jump from $1.25 billion in 2004.

Google went public last August at $85 a share. At the close of business yesterday, it was trading at $193.51.