Google's earnings miss? from what perspective...
Google stock dropped today by more than 8% after they reported earnings that missed securities analyst's earnings estimates after the close yesterday. With 25% revenue growth and over 10% earnings growth, one wonders what a good quarter would need to look like given the hurdles that are placed before this company.
How did this happen? Google has long been a company that focuses on long term strategic initiatives rather than quarter to quarter accounting numbers. With that focus they have almost uniquely in corporate America not kowtowed to the securities analyst community. They don't give guidance on earnings, they rarely speak to the investment community, and they rarely if ever attend investor conferences - the analysts must catch Google at a trade show where they talk about their products or at an acquisition announcement where Google talks specifically to the deal.
When from its birth until several years ago Google always stunned the analyst community with earnings and revenue growth that none would have dared even imagine, Google's approach to analysts was of no consequence. Now the analysts and the trading segment of the investment community focus on the short term and Google's moderating growth(? see above for growth numbers that almost any company as huge as Google would die and go to heaven for) and paddle ball the stock around on any disappointment. The analysts are begging to be spoon fed.
From another perspective, who are these analysts today and how is the aggregate analyst estimate calculated. Following the castration of the brokerage analyst community by awful Spitzer and the Feds, almost all really smart securities analysts who knew how to do the work found better pay and opportunity at investment managers or straight out hedge funds. What was left were quantitative analysts that could run accounting spread sheets, unqualified analysts that were in the hip pockets of trading hedge funds, simply honest unqualified clueless analysts, and all those people in India who at bargain prices could run the numbers and send the result back to the U.S. to be published by minor research firms with no credibility, mostly equal opportunity fronts.
Gone for the most part, except for areas like retail and commodities, were the type of securities analysts that knew their industry so well that they really didn't need the company to provide any kind of guidance. They researched the markets that a company was in and they tore apart a company's finances for any weak links.
What that means today is - Google's approach cannot be offset by smart people in the securities analyst community doing their homework. In the aggregate they are clueless, but traders and the media still live off of their numbers, just as credit community lives off of the ratings of S&P and Moody's after they were completely discredited.
It is unlikely that Google will change, and let's see if the stock drops a little more in the next few days and the people with a better grasp on the big picture will once again start building up and looking for the next incremental growth in the value of their holdings and the power of this franchise.
I know yesterday's story - margin compression and spending for research and talent. Why is that not transparent to a securities analyst who is well paid and is supposedly focused on only less than a handful of companies this big and this powerful. Not spoon fed - too bad.
Find any company in the world that is this big( in assets) and has 25% revenue growth in a quarter. I'll even give you a quarter for each one you find.
How did this happen? Google has long been a company that focuses on long term strategic initiatives rather than quarter to quarter accounting numbers. With that focus they have almost uniquely in corporate America not kowtowed to the securities analyst community. They don't give guidance on earnings, they rarely speak to the investment community, and they rarely if ever attend investor conferences - the analysts must catch Google at a trade show where they talk about their products or at an acquisition announcement where Google talks specifically to the deal.
When from its birth until several years ago Google always stunned the analyst community with earnings and revenue growth that none would have dared even imagine, Google's approach to analysts was of no consequence. Now the analysts and the trading segment of the investment community focus on the short term and Google's moderating growth(? see above for growth numbers that almost any company as huge as Google would die and go to heaven for) and paddle ball the stock around on any disappointment. The analysts are begging to be spoon fed.
From another perspective, who are these analysts today and how is the aggregate analyst estimate calculated. Following the castration of the brokerage analyst community by awful Spitzer and the Feds, almost all really smart securities analysts who knew how to do the work found better pay and opportunity at investment managers or straight out hedge funds. What was left were quantitative analysts that could run accounting spread sheets, unqualified analysts that were in the hip pockets of trading hedge funds, simply honest unqualified clueless analysts, and all those people in India who at bargain prices could run the numbers and send the result back to the U.S. to be published by minor research firms with no credibility, mostly equal opportunity fronts.
Gone for the most part, except for areas like retail and commodities, were the type of securities analysts that knew their industry so well that they really didn't need the company to provide any kind of guidance. They researched the markets that a company was in and they tore apart a company's finances for any weak links.
What that means today is - Google's approach cannot be offset by smart people in the securities analyst community doing their homework. In the aggregate they are clueless, but traders and the media still live off of their numbers, just as credit community lives off of the ratings of S&P and Moody's after they were completely discredited.
It is unlikely that Google will change, and let's see if the stock drops a little more in the next few days and the people with a better grasp on the big picture will once again start building up and looking for the next incremental growth in the value of their holdings and the power of this franchise.
I know yesterday's story - margin compression and spending for research and talent. Why is that not transparent to a securities analyst who is well paid and is supposedly focused on only less than a handful of companies this big and this powerful. Not spoon fed - too bad.
Find any company in the world that is this big( in assets) and has 25% revenue growth in a quarter. I'll even give you a quarter for each one you find.
posted by John Borden at 9:59 PM
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