Thursday, April 14, 2011

Google's earnings - do they care about shareholders?

Last summer when Google was trading around $450 I gave an uneqivocal endorsement of the stock saying it would easily be above $600 and probably higher in a year. It had to go up. It did, and now it's coming back down.

Google today reported earnings below most securities analyst's estimates and below general market expectations. They say that the miss is due to marketing expenses, hiring 6000 new employees, and giving all non-executive workers a 10% raise. Speaking with all of the animation of Eeyore, Larry Page said that everything is happening just as planned and he was completely optimistic.

Over the years Google has, in some ways refreshingly, always had a distant relationship with the investment community. They do not give guidance or often speak to securities analyst or investor meetings, if at all. That may be a good approach, but certainly when the consensus view has it wrong Google could choose to issue mid-quarter press releases or official statements that refine expectations. That is not their style.

Is Google so absorbed with its quest for domination of its markets and its new ideas that they can't be bothered with their shareholders? Are all of the executives so extraordinarily wealthy due to their ownership in Google's first few public years that they have no incentive to care about stock price? They should, because the ability to gain and keep new engineers and creative types will be severely hampered by a lanquid stock that offers no upside on options or stock based compensation awards.

Google presently has no long term debt, $46 billion in shareholders equity, and $36 billion in cash and short term liquid securities. What is that $36 billion doing? Perhaps earning 2%, way below any firm's cost of capital. Any opportunity to use that cash for acquisitions seems now to be stymied by anti-trust actions at every turn. Why not have a major special dividend or a mind bending stock buyback or both, and reward shareholders for their investment. At this point there is really no excuse for the company's shareholder ambivilant attitude.


Anonymous Kizziah said...

They seem like a company that mistakes securities analysts for their shareholders. Securities analysts for brokers and even those for some institutional investors, especially pension funds, can be picky, obsessive, arrogant, and stupid, and easy to manipulate as well. The actual major investors are often thoughtful folks who may rarely go to investor meetings. Sure it's "refreshing" to see a company not give in to analysts whims, but ignoring the actual shareholder and the metrics they rely on is totally misguided. Someone teach those Google geniuses some Investor Relations - YOU?

3:39 PM  
Anonymous Anonymous said...

An opinion - Google will go on an international buying spree. They will even make a significant acquisition in China. Their dust up with the government there was just a head fake by both Google and the authorities. Now they can do something big and both have cover. There is too much growth there for Google to just watch SINA and others sop it all up.

International growth potential is massive in so many countries that simply bypassed older technologies because they were undeveloped. Africa for example will come of age with broadband and cell satelites, which will displace what they have, which is nothing. The vast majority of prosperous Indonesia is in the same situation. China and India are of course the big dogs. Google has a "war chest" to expand where growth opportunities are the greatest. When this becomes apparent to the market the stock will reach $1000 quickly - when the market understands this is uncertain.

Maybe the perception will change later this year, maybe 2012, who knows. I know it will happen and will remain...

2:46 PM  
Anonymous Anonymous said...

Google is to arrogant to care about it's shareholders and timing was everything for the China opportunity. It is gone. Sina rocks. If Google thinks they can also keep developing (hiring 2000 employees and a 10% raise) and not monitizing their creations, they are very wrong. I have (my charity for dogs) has taken it's last huge loss with Google. I am just one...there are thousands like me.
Goooo.. Sina, Baidu, appl,crm

6:19 PM  
Anonymous Forbes said...

Someone tell me, is it time to buy SINA. Off some today, but the stock has been heading to the penthouse. Should I wait for a correction or just jump in with both feet on the assumption that they've only just passed the second floor

4:48 PM  

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