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Analysts Are Seeking Guidance From Google

Posted by ryuzaki0 on from the analyzing-googs dept.

Carl Bialik from WSJ writes "Following last quarter's disappointing earnings, Google's annual analysts' day this Thursday is shaping up as a test of the company's reluctance to provide financial guidance -- and of investors' tolerance of that tight-lipped approach, the Wall Street Journal reports. 'Now, Google watchers expect analysts to bring tough questions on Thursday and to pressure executives for answers that might give analysts greater confidence in their forecasts,' the WSJ reports. 'There's no reason to believe that Google will yield to any such pressures.' However, 'There is one recent sign that the company aims to be more analyst-friendly. Company representatives earlier this month solicited analysts for input on what investors wanted to hear about on Thursday, according to a person familiar with the matter.'"

21 of 119 comments (clear)

  1. Google Pool by Anonymous Coward · · Score: 2, Insightful

    How long before "do no evil" is replaced by make mo money?

  2. About time.... by Anonymous Coward · · Score: 2, Insightful

    ...investors started to question why they were throwing their money at a company that's pretty much cornered the rather modest (compared to their market cap) market of web advertising and shown nothing more than lots of FREE! email and FREE! search and FREE! videos and FREE! map products.

    I can sort of understand why some people thought they might do something wonderful early on, but come on. It's been too long and they have virtually nothing to show for it other than grandeous rumors from morons like Cringely that never materialize.

    1. Re:About time.... by mattjb0010 · · Score: 4, Insightful

      The services may be free but they increase revenues from advertising, what's at issue here is not Google's ability to make revenue or generate growth (they've been doing both fine) but that they need to be more honest and open in the marketplace for the market to do its job.

    2. Re:About time.... by stevesliva · · Score: 3, Interesting

      How does providing specific profits and revenue guidance have anything to do with being more than a company that gets its revenue and profit stream from adwords? If Google provides guidance, it's not revealing the secret playbook to become the next Microsoft, it's estimating how many ads it will sell next quarter and year. Investors will learn nothing really new from this, other than a better idea of whether the Forward P/E is 40 or 20 rather than 32. Wall Street analysts, on the other hand, will get a nice benchmark for their own estimates, and get a pat on the head if their estimates are more accurate because of the guidance from google.

      --
      Who do you get to be an expert to tell you something's not obvious? The least insightful person you can find? -J Roberts
    3. Re:About time.... by frank_adrian314159 · · Score: 2, Insightful
      ...they need to be more honest and open in the marketplace for the market to do its job.

      And that job would be?

      As far as I know, other than a few shares squirrelled away for future needs and the options for its employees, Google has no particular reason to make its share price go up any further than it is now. Nor is it clear that releasing quarterly estimates would help them to do so.

      If they were smart, they'd do even more to decouple themselves from the "market" and tell the "Street" to s*ck it. Replace the employees' options with stock grants and encourage them to sell. Sell the founders' shares. The best play Google could make with respect to its long term health would be to get out of the market altogether and not worry about what the bottom feeders who inhabit that zone think.

      "Oh!" but you cry, "What if they ever needed to raise more cash?"

      Well, what of it? If they really ever needed to again, they could float another issue. As long as the sharks sensed they could make a dime, they'd buy again, bad reputation with the analysts or not.

      The bottom line is that, right now, the stock market needs a winner like Google a hell of a lot more than Google needs a stock market.

      --
      That is all.
  3. They deserve it by bogaboga · · Score: 4, Insightful

    I have no sorrow for all those so called pundits/analysts and others. All they want is an avenue to be able to speculate after being provided with some data. How come they were not able to predict and prevent the ENRON scandle? Let then leave Google alone, after all, this America.

    1. Re:They deserve it by LostCluster · · Score: 3, Insightful

      Enron lied to analysts, google won't talk to analysts. Both companies show very little respect for teh average stockholder.

      How is not talking to analysts disrepectful to the average shareholder? The average shareholder doesn't have time or sometimes even access to read analyst reports, those are mainly used by the big-pocket investors.

      Google's way of doing things is to release it all in a sometimes surprising earnings report. Sure, the stock tumbles when they miss the baseless estimates, but just wait to see how much it jumps when the baseless estimates come in too low.

    2. Re:They deserve it by anthony_dipierro · · Score: 4, Insightful

      Enron lied to analysts, google won't talk to analysts. Both companies show very little respect for teh average stockholder. The only difference is that google's motto is "do no evil," so it isn't unreasonable to expect more from google.

      And more is exactly what Google is giving. What's good for the analysts isn't necessarily what's good for the stockholders. And it's not like Google is the only company which refuses to provide financial guidance. Most likely they got the idea from a company you may have heard of called Berkshire Hathaway - a company whose stock has grown to over $85,000 a share.

  4. So let me get this straight... by Anonymous Coward · · Score: 5, Interesting

    Google blows away analysts' projections for the first three quarters of last year. Those analysts wise up and factor in some fudge, and suddenly their projections for the fourth quarter are much higher. Google fails to beat the inflated projections and is now suffering an investment backlash?

    What gives?

    1. Re:So let me get this straight... by anthony_dipierro · · Score: 3, Insightful

      And in the end, it really doesn't matter to the Google executives and the long term investors. Google already received its investment. Going forward it's just a matter of a zero-sum game among the traders (actually less than zero-sum if you include commissions).

      For the long term investor, this quarter to quarter stuff is meaningless anyway. Where is Google going to be in 10, 20, 50 years. That's what matters to the long-term investor, and that's what the Google executives want their investors to focus on. Hey, it works for Warren Buffet's Berkshire Hathaway (Buffet most likely being the influence for this decision as well as the decision not to split).

      "And when a CEO makes a pronouncement--even one that's largely based on hopes and guesses--employees will use whatever means necessary to make it come true. If earnings are supposed to be $1 a share, they will be, even if it takes some creative accounting. That's one reason Warren Buffett refuses to provide financial guidance at Berkshire Hathaway and why he has encouraged other companies on whose boards he sits, such as Coca-Cola, to give up the practice." - http://money.cnn.com/magazines/business2/business2 _archive/2005/11/01/8362824/index.htm

    2. Re:So let me get this straight... by Catbeller · · Score: 4, Insightful

      "What gives?"

      Indeed, and that backlash really smarts, I have to say on a personal note.

      Anyone given any consideration that the downgrading of the stock by the analyst community might be a deliberate act of passive-aggressive punishment? Give us access or we destroy your rep on Wall Street? As I said, passive-aggressive; it's not that they slander the company, it's that they won't buoy it up by the usual flim-flam good press they give to the reputations of companies that toe the line and let the analysts get inside info they can use to make themselves very rich. Very, very rich.

      Google has my respect if they are resisting those thieves. But they are paying a dear price. So am I, ka-ching.

      Analysts want to game a company's activities to produce high short-term profits that will enrich the casino on Wall Street. Google is right. The best way to produce value to your shareholders is to grow a company over the long haul, even if it sacrifices short-term cashouts for the inside traders.

      How many companies would still be in existence if they hadn't squeezed themselves dead to satisfy the expectations of those horse thieves?

  5. If they want their questions answered.... by canning · · Score: 4, Funny

    If they want their questions answered, Google them. It's what i would do.

    --
    I love the smell of Karma in the morning
  6. Secrecy as a Strategy by Beuno · · Score: 3, Insightful

    I think the day Google doesn't have a certain secrecy around them, they will loose a lot of their appeal.

  7. Re:Of Course by JeffSh · · Score: 2, Insightful

    the mystery approach is the way to go and the way to stay. in business and personal relationships.

    you aren't interested in the girl you know everything about.. you aren't interested in the girl you've seen naked..

    you're interested in the shy, complex girl who you don't know anything about. she's quiet, and always wears those clothes that cover up the curves that you know are just under there somewhere...

    plus, theres always the addage of "if you're thought a fool, it's best to keep your mouth shut than open it remove all doubt."

    mystery >>>>> knowing everything. in every conceivable social and business situation.. atleast when you're the one being courted. if you are the couter, well then, its you who are intrigued by the mystery.

  8. Re:Of Course by stevesliva · · Score: 3, Insightful

    Uh, no. This is the Wall Street Journal, and they're talking business. "Guidance" refers to a company providing a range of revenue and profit for the coming quarters and years. Usually no more than two years. Stock analysts also come up with their own estimates, which are averaged to decide each quarter whether a company met or exceeded expectations. If Google provides guidance, it has an affect on controlling those expectations. Part of the wild rise in Google's stock price was that the analyst estimates were on the low side, until last quarter, when Google finally missed. Even though it is their job to read the tea leaves, the analysts are essentially asking Google to do so as well.

    --
    Who do you get to be an expert to tell you something's not obvious? The least insightful person you can find? -J Roberts
  9. The analysts' big secret. by bgarcia · · Score: 3, Insightful
    So basically, analysts do nothing. They act like they "analyze" and make predictions, but in fact they rely on the companies themselves to do all the work for them.

    I need to get a job like that.

    --
    I'm a leaf on the wind. Watch how I soar.
  10. Fast reactions by rumblin'rabbit · · Score: 4, Insightful
    This practise of giving earnings guidance is a game that has little or no benefit for the long term shareholder. It only benefits analysts with fast reactions and access to after-hours markets. Some of the best companies in the U.S. (many have Warren Buffet on the board of directors) now no longer give guidance and I approve of this.

    The long term investor is quite content to wait till the quarter is actually over before finding out how well the company did.

    Having said that, Google's price is still too high.

    1. Re:Fast reactions by Uber+Banker · · Score: 2, Insightful

      This practise of giving earnings guidance is a game that has little or no benefit for the long term shareholder.

      Yes and no. It, sort of, has no effect on the long term average price. And I have no sympathy for analysts playing guessing games and racing to get their estimates out.

      But it does have an effect. It affects the average variance of the stock. If the long term investor is going to release stock one day, it is preferable to have a lower variance. For an investor to be indifferent between two stocks with an average price of $10, for 2 companies with pretty much the same long term business prospects, but one stock has 15% aveage variance and the other has 2% average variance, the investor would have to be completely risk neutral. Going for the higher variance stock means buying risk, which could be interesting for some investors, but more so the day traders.

      Variance also impacts the pricing of options. And having a less discontinious price for the stock (i.e. the company smooths its earnings reports in terms of regular press releases) allows more reliable cross-correlations with the market and other factors so the long term investor can more reliably see whether they're exposed to various contagion risks or what would happen when correlation goes wrong (and correlations tend to work only for only a limited period of time, so short time span data is important).

      Not releasing regular reports disadvantages average investors, which is to the advantage of an investor like Berkshire Hathaway, which takes a (usually late stage) private equity style approach to investing by taking a long term approach coupled with indepth analysis on each company.

      It is interesting to contrast individual companies hesitant about giving out regular data, to central banks which decide interest rates going to pains to signal their future opinions and changes in those opinions. "We want the business of forecasting to be boring," the head of the Bank of England regularly says.

  11. Re:Earnings Schmernings... by satchmodian · · Score: 2, Interesting

    Not exactly. They missed for several reasons, some of them relating to how well their business is run. While revenues were up, so were costs, both from spending more on acquisitions and hiring, and from expensing stock options. And there were a lot of stock options. Also, it is up to the CFO to know inside and out the financials of the company, so when he expects a 30% rate and it turns out to be a 40% tax rate, you have to wonder what he didn't know. Lots of CXXs have been fired for less. You can argue that maybe if they didn't have to pay so many taxes they would have made more money, but then I can argue the same thing... but it won't change the fact that I have to pay them.

  12. Google shouldn't provide guidance by Damana+Mathos · · Score: 2, Interesting

    Wall Street analysts like guidance because it gives them something to base their own estimates on, which hopefully means estimates overall are closer to the mark.

    Google, following true Warren Buffett style, have so far refused to give guidance and I think this will continue.

    The problem with giving guidance is it can distract management by putting the focus on meeting short-term estimates, which can be at odds with creating long-term guidance.

    For example, let's say you run a company and you've put a number out there for earnings this quarter. You notice your sales are coming in strong, so you'll miss. What do you do? The temptation is to cut back on discretionary spending like, say, advertising, even though doing so might not be in the best interests of long-term shareholders.

    Better to just not provide guidance, and let the numbers speak for themselves over time.

    --
    MyLinkVault - online bookmarks with a fast drag-and-dr
  13. How everyone involved makes money... by SchumpetersGhost · · Score: 2, Informative

    ...shows their motivation and, I believe, how much Google respects them:

    Investors: make money by purchasing a stock, holding it for a "long term" (investor defined, but usually over years), and sells it at - hopefully - a higher price while making some money along the way in dividends. (See Benjamin Graham). Google respects them just fine, as they have an interest in the value of the company.

    Traders: make money by buying/selling shares over the short term. Google's not so much worried about them as they are only interested in the stock price over days, weeks, or months. However they do provide the service of market liquidity.

    Brokers: make money when *someone else* (a trader or investor) buys or sells shares. Their income is more dependent on trading volume than the price of the stock. I don't think Google even acknowledges their existence.

    Analysts: make money when someone else purchases their opinion...er, I mean, "research". If their opinion is wrong, fewer people are willing to purchase it (or they should be - once again, see Benjamin Graham). They perform their function to "protect the investor", but look again at how they make their money. They are gadflies. Google puts up with them because they are a reality of the market.

    Graham and Buffet are two of a kind. Hopefully Google will continue their practices from the corporate side.