Google CFO Said What, Exactly?

Not to get caught up in intra-day controversies, but there is a problem here.  CNBC has apparently reported that George Reyes said that organic search growth is slowing and that the company will have to find other ways to boost revenue (presumably he said this at the Merrill Lynch Internet and Advertising Conference).  As yet, no other reports have confirmed/denied anything, but the stock is down 12% in 20 minutes.

Here's the problem: If Reyes had really made an announcement, there would need to be a press release from the company (that's what Reg FD is all about).  Until we know exactly what he said, therefore, it seems possible that he just reiterated the boilerplate the company has been printing in its 10Qs for a year: Growth will slow.  Reyes rocked the world 15 months ago with some remarks about click fraud, and since then, the company hasn't so much as mentioned it again.  So it seems possible that, once again, CNBC didn't let context get in the way of a good story (although I don't know exactly what CNBC said, either--this is all just a game of telephone).

Of course, growth at Google will slow at some point, probably precipitously.  So maybe Reyes did actually "announce" something.  And, in any case, it's another good indication of what will happen to the stock when growth does slow.

UPDATE:

Finally, we have a story with quotes (from the WSJ).  The quotes, unfortunately, tell us nothing (saying "growth will slow" is not news).  The reporter's summary suggests that Reyes explained that the revenue boost from tweaks to the search links (adding links, moving up page, etc.) has played out and that now the company will be dependent on organic growth (more clicks).  If Reyes really said that, it does seem like news (albeit hardly surprising news).  But I'd like to read the actual quotes.

NEW YORK -- Google Inc.'s chief financial officer, George Reyes, said the Internet giant's growth is slowing due to the "law of large numbers." The comments triggered a selloff in Google's shares.

The company's 18-month effort to boost search monetization by tweaking the advertising system has realized most of the gains possible, he said. Now growth is being driven mainly by organic factors, like query traffic growth, which he called substantial.

"We're going to have to find other ways to monetize the business," Mr. Reyes told attendees of a Merrill Lynch investor conference.

"At the end of the day, growth will slow. Will it be precipitous? I doubt it," he said. "I'm not turning bearish at all. I think we've got a lot of growth a head of us. It's a question of what rate."

UPDATE 2:

More quotes, these from thestreet.com.  Still nothing new.  So far, this is largely a media-induced panic.

Google finance chief George Reyes, speaking at a Merrill Lynch conference in California Tuesday morning, said that "clearly our growth rates are slowing."

"You can see that each and every quarter," Reyes told investors and analysts. "We are going to have to find new ways to monetize the business."

UPDATE 3

More quotes, these attributed to CNBC, but via Reuters (more game of telephone):

"Growth is slowing and now largely organic," the Google CFO was quoted as saying. "The search monetization gains have now been largely realized."

Okay, if Reyes really did say that, that's news.  And if he really did say it, Google is going to win a prize for screwing the small investor.  If he didn't say it, meanwhile, then CNBC is going to win a prize for screwing the small investor (and every big investor not fortunate enough to have his or her butt in a chair at the investment conference).  And even if he didn't say it, enough damage has been done that Google should issue a clarifying press release.

UPDATE 4:

So it turns out that the presentation was Webcast and that a replay is available through Google's site.  Reyes' remarks came in the Q&A.  I listened to the question that prompted the comment about growth rates slowing, and I did not hear the exact quote above that is now being attributed to CNBC.  It may have been an answer to a different question, but it wasn't in that one.

Reyes did say, quite casually, that the monetization initiative that began in Q3 last year has now run its course and that revenue growth will now revert to organic click/price-per-click growth rates.  This is what some observers had suspected, but to my knowledge it had not yet been confirmed by the company.  The question, therefore, is what the "organic" growth rate is and whether the Q1 numbers will show a significant deceleration from Q4.

The bottom line: This is news, and it's not positive news.  It's not also the five-alarm fire that CNBC is said to have reported, the one that knocked the stock down $50.  Given that the presentation was webcast, the five-alarm fire can't be blamed on Google. I'll transcribe the actual answer in the next post.

Comments

[Still Inside]

Once again GOOG shows us the wisdom of their "we don't do guidance" policy. If they had given guidance like any normal public company then this comment and any others like it would be taken in the context of the guidance. As such, the statement would have information that was already (mostly) priced into the stock. Instead, there's panic.

GOOG stockholders should see the movie, "Man on the Moon" to see what they are in for. The spirit of Andy Kaufman has possessed the management team at GOOG right now.

SI

[B]

The knife catchers get screwed. They'll be back in today or soon because they are positively conditioned with Google. Tradable rallies on broken stocks should only be done by people watching the stock during intraday hours. The market hit a big intraday burp before CNBC's report so something was likely said.

I guess the infallible management team at Google may just be fallible. I know I am in the minority but I just find it hilarious that two geeks with no business experience are now held in esteem as the best business execs on earth by implication. The story is more likely as Diller told it. Two geeks come up with a great idea for search. They decide to throw a few ideas on the wall with the help of some other minds who have toyed with paid search and it sticks. Alternatively, as a backup plan they were going to sell out to Doubleclick or some other worthless dot bomb company for a song. Egos keep them from making such an admission. So, in an interview I see one of them say that he always knew paid search would be this big. Hmmm. I got a big turd sandwich for anyone who believes that. I like alot of their corporate philosophy. I think they are very bright. And I think they have a reasonable chance of turning this into a global brand with lasting value. But, they have and will make many mistakes along the way. Many of which are because of their lack of experience and the fact that they aren't likely quite as infallible as many would want to believe. That's not a show stopper because very few CEOs are brilliant. And even fewer are even competent. The Google guys are "potentially" both.

People need to learn when to invest in momo stocks and to practice risk management. The market does not reward risk late in a market cycle. Any little news will punish a momo stock. Hell, they are even downgrading Amgen to an outright sell when months ago you'd be creamed if you tried to short it.

Risk is rewarded early in the cycle. Not now. I still believe your comments of Google under $100 are very viable if the economy really slows. Yahoo from $125 to $4 in the last slow down.

During bull markets, risk is rewarded when drops recover to make new highs. Unsophisticated investors begin to develop a Pavlovian conditioning. Buy on dips and be rewarded. Eventually, the situation always arises where the bid does not recover and there are no more buyers and they get screwed. It's a fact of life with every momo stock in every cycle.

[Robert]

I am an individual investor who has done very very well with goog, the stock.
I have argued with some on this site about the merits of goog, the stock
and Google, the company. I was on the Merrill Lynch conference call this morning and was shocked by the statements that George Reyes made. Is Reg FD only for other companies? Why did he say the market moving words just 2 days before Google's annual investors day.
I think I understand risk. But I do not understand the way the comapny is
managed. We in the United States have a 200 year tradition of full disclosure
to everyone at the same time. That is why most major announcements are made
before the market opens or after it closes.
I believe George Reyes should be terminated immediately. And I believe that
Sergey Brin and Larry Page should relinquish their management duties to others
with management experience. Eric Schmitt, the directors, and others need to be held to the same standards as those in every other company listed in the USA.
Google, the company, is just another company with a stock symbol and a
Nasdaq listing. If the company continues to act like rank amateurs vis-a-vis
their shareholders, we will all do what we can do------sell goog, the stock.
Grow up time. Larry and Sergey may change the way we do a search but they will not change the way investors react.

[anon]

A public web conference call does meet the requirements of full disclosure.

[Chad]

There is no Reg FD violation here. They issued a press release annoucning their appearance at the ML conference. The presentation was available to the public in real time as a webcast. Nothing wrong with that at all as far as Reg FD is concerned because all investors had access to the information at the same time.