Google to Wall Street: "Wait! We DO Care!"

Nothing like a cold shoulder to melt the ice.  Jonathan Berr of thestreet.com reports that, now that Wall Street has collectively flipped Google the bird, the company has developed an interest in what investors think.  Specifically, Berr says, the company has hired an IR firm to survey analysts about what they want to hear about at the upcoming Analyst Day (click fraud and pricing, said one).

Whether Google will actually tell Wall Street anything, of course, remains to be seen, but the new attitude suggests that, at the very least, the company won't insult its investors by once again wheeling out the Chief Chef.  Funny how a good swift kick in the market-cap will bring even the most committed we-don't-care-about-Wall Streeters back to the table.

Comments

[joe]

Too funny. The "do no evil" Google guys kowtowing the Chinese communists, the politicians in Washington, and now the bankers on Wall Street. Funny how things change when there are billions at stake.

[Neo]

They may have to kowtow to the Street, but what about their advertisers.

Everytime we specifically inquire about obvious click fraud, charge for clicks from the same IP address within 30 seconds, the compnay response is that "We do not believe that is click fraud."

How does an advertiser argue? Their response is total nonsense and furthermore clearly EVIL.

Google should go to a Cost Per Acquisition (CPA) model and then they would be doing no evil.

Go get'em Henry, your on to something real big. The FTC should really be investigating this level of outright fraud.

Google is a GREAT company, but the fraudulent clicks must stop.

[Victor]

This is indeed a positive change in behaviour from the company. However, people should not mistake idiosyncracies and idealism for arrogance. I think the people at Google genuinely thought it would be "cool" to bring their Chef out. Perhaps naivete is a flaw they're learning to fix?

[Henry Blodget]

Victor: Agreed--they almost certainly thought the chef would be cool (and, in a way, it was). The world changes when you're taking people's money, and it changes even more when you start losing it. The difference between the company's attitude on the IPO and on the secondary was striking, and this is another step in the right direction. Overall, I'd say that, for a couple of 30-somethings, Larry and Sergey have done a remarkable job of quickly growing into their new status as deca-billionaires.

[Mathieu]

I believe this is a move towards normalizing Google, not just a short term fix. The issue with that is that if google becomes more normal, investors won't tolerate abnormal numbers (read: astronomical P/E).

Google will probably experience a painful but necessary move towards the norm. At half of its current market cap the comapny would still be a dominant force and would seem much more normal

[Srinivasan]

A post on Google again !

[Henry Blodget]

I know. Sorry. Couldn't resist.

[/pd]

But their have devested into other area/companies too. E.g. Fon/amazon , this means they are playing with capital in a nice way. Investing as a percentage in other companies will get them a steady roi which makes shareholder value for goog.

[Robert]

re: Google
non-issues on the stock, goog:
1. wealth of the 2 founders, some employees, VC firms.
2. the chef
3. market capitalization
this noise will never make any of us any money.

real issues:
1. how to deal with click fraud, if it is indeed a problem
2. how to get investors who were buried by analysts
like you, Mr Blodgett, to regain confidence.
3. how to let a company grow without incessant
criticism.....not even a Google search could
uncover all the negative pieces. Must Google, the
company, answer ALL or any of these charges.
4. how to make analysts confess their mistaken predictions
often on Google and but on many others as well. let us
see their quarterly track records (annual really would suffice).

my dream is to see commentators on CNBC, Bloomberg,
Fox, all show their investment records as mutul funds
must show in all their advertising. Then we viewers/
investors can place their advice within some measureable
context.

btw working for a company with great benefits is a wonderful
place to be employed. try it. employees are far more productive.

[Henry Blodget]

I'm with you on the noise, but you have to admit the chef was amusing (especially in the absence of a real financial presentation). And let me go on the record, again, as saying that I think Google is an extraordinary company and that its performance over the past seven years has been nothing short of staggering. I know people who work there and love it and who can blame them. When combining return on invested capital, growth rates, future opportunity, cash flow, etc., the economy has probably never seen anything like the company.

This said, simply observing over and over again how amazing Google is gets boring after a while, and it also doesn't help anyone figure out whether it's going to get more or less amazing in the future.

As for having confidence in analysts...

Please recognize that one of the challenges for analysts is that the financial media (and other observers) always expect them to know much more about the future than they do. Yes, there are plenty of analysts who are arrogant windbags, and the nature of the business is that they will get plenty of opportunities to look like fools. But as for the rest of analysts and commentators, they are simply looking at the same facts, data points, trends, and numbers as the rest of us, mixing them with some experience and psychology, and doing their best to shed light on an uncertain future. The best ones--the BEST ones--get it right about 60% of the time.

So if "having confidence in analysts" means believing that analysts are doing the best they can, great. If it means having confidence that analysts will mostly be right, forget about it. If it were that easy to make money in the market, we'd all be billionaires.

The way the smartest investors use analysts and commentators is NOT to be told what to do. Because every investor is different, figuring out what to do has to be the investors' job, not the analyst's job. The way the smartest investors use analysts is as sounding boards, eyes and ears, idea generators, and devil's advocates. Now that everyone is down on Google, for example, the valuable analysts are those who can articulate a compelling, cohesive argument as to why the market is underestimating the company. And if the stock blasts to $600, smart shareholders will once again turn to a smart bear or two to figure out what they might be missing.

As for posting track records, it would be tough to do, and I don't think it would really help much. First, managing money is an entirely different discipline than being a sector analyst. Second, how exactly are you going to compile the track record? What are you going to assume for transaction costs, timing, weights? Will each stock the analyst rates "buy" constitute a fixed percentage of his/her phantom portfolio, or can he/she hold small positions in some and big ones in others? Can he/she go long and short, or just long? How much cash can he/she hold? How much are you going to account for what the market and larger tech or media sectors did during the time period? What about risk-adjusting the returns? Should the analyst use a growth or value stock-picking strategy? Small-cap or large? Quantitative? Technical? Or just fundamental? Can he or she trade in and out every day, or make just a couple of trades a year? And what does a "buy" mean, anyway? That the analyst expects the stock to go up? That the analyst expects the stock to perform better than the market or sector? It's different at every firm, which means you would have to have a different tracking system for every firm. The bottom line is that writing about 10-15 stocks in a tiny corner of the market--the job of a sector analyst--is completely different than managing a portfolio and unfortunately, there is no way to measure a "track record" that is always meaningful.

Which brings us back to what analysts are good for: The good ones help investors develop their own thinking and, therefore, make better decisions. If you are looking to analysts for any more than that, you are falling into the media's conception of what analysts are for ("Just tell me what to do.") Unfortunately, it never has been and never will be that simple.

[/pd]

yes, Henry's Right - We expect the analyst to weigh into the decesion making processing as a critical thinker with the whole bag services !! This means, as an investor, I want others to point out why I am making the wrong choice -before I make the investment !! Having an investor telling me that I making the right choice is not worth it -paying for !!

[B]

The continued antics by Google points to a perspective I have had for some time. Google has stumbled into something and is successful in spite of itself...for now. To think that two guys with no experience in business can all of a sudden become the greatest executives in the business world, as hailed by nearly every idiot out there, is preposterous. They constantly show their immaturity, lack of wisdom and general misunderstanding of strategic issues in their near constant foibles.

Ditto with Schmidt. He is not a "customer" guy. He's been a behind the scenes geek executive (I'm an engineer by training so I am not indicting him.) with little experience where he had to make prescient business or investment decisions. I hate to piss on the parade but I've dealt with many execs that I think could have done a much better job of running the business of Google. They are obviously bright guys and deserve to have say in the business they created....or stumbled upon as Barry Diller has so stated.....in either case they are both very, very smart....but they need to join the big time and get in the game.

[simone brunozzi]

Well, here you can find a (maybe) interesting article about adwords’ click fraud elimination:

http://www.golan.it/how-to-save-google.php

Cheers,

[Robert]

Henry,
suggest you take a look at the Columbia Journalism Review criticism of Jackie Doherty's Barron's article. You are mentioned, not positively.
www.cjr.org 15 February 2005.

[JD]

When the Supreme court trial begins I will fire up this website for up to the minute coverage. I am expecting it to be sooner than later that this will happen.

http://www.googleversus.us

[Still Inside]

RE the WSJ article on MSN, Yahoo, others planning huge $$$ give-aways to compete with Google:

Does this portend the commoditization of Search?

The core problem is that, in consumer tests (actual double-blind scientific ones, not the one your aunt Edna thinks is cute), users see very little difference in the actual quality of search results between the major engines.

Google has the hot brand name right now, but being the Coke in the Coke vs. Pepsi wars does not provide tech company margins. I predict that if they MSFT et. al. throw enough money at the problem, Google is going to have to respond, which means bye bye margins...

SI

[fCh]

Hm, it seems Google has borrowed a page from the past 6-year history of MSFT stock value and its effects on employees' morale. Indeed, how can Google keep all the newcomers to the Googleplex happy if not by doing a better song and dance with Wall Street?

[Sterling]

This story reminds me so much of a late 90's insider story I heard via a friend who was a junior executive at a high-flying telecom CLEC. The company spent lavishly, with expensive artwork adorning the hallways of the corporate HQ, an elaborate and expensive statue in front of the building, and all kinds of "new projects" in development. A big source of controversy that received attention from investors and employees was the very expensive corporate jet that was used to fly the CEO and other execs around. When my friend casually asked one of the higher ranked executives why the company spent so much on the jet and its related expenses instead of having people fly business class like the rest of management he received a most curious response. He was told: "If you want to play with the big boys on Wall Street you have to show them you can live like one."

Not sure I agree with that assessment. I'm more impressed by a company that manages its business and assets well and doesn't overspend on superfluous items like gourmet chefs or jets. If a company has found a creative way of saving money or gaining a tax benefit through interest, depreciation, and amortization by having its own air travel or gourmet restaurant in house, fine. Perhaps that's a new line of business for them to consider being in? I didn't see that as being the case, it looked more like another way of squandering the shareholders money on an elaborate and unnecessary expense. After this company's stock was worth less than 10% of its previous value they did finally change management, begin an austerity regime, and sell the jet and the artwork. A lot of the revaluation of the stock had to do with their linecounts, chargebacks, and revenue growth projections being way overblown and inflated when the shares were going up and the subsequent profit margin squeeze from all the big ticket expenses.

[robert]

all you naysayers are missing a buying opportunity in goog.
after the silly one-sided article on Barron's cover last week, the market
gave us a chance to buy the fastest growing company in
technbology, coincidentally with over one billion dollays in
earnings in its 7th year---at 337. Right now the stock is
378. Stop worrying about their chef, their jets, their insider
selling, the MSFT competition, ad nauseum, and buy the stock.
Bottom line: since the IPO at 85 only 16 months ago, the stock
has quadrupled and you guys are carrying on about their chef.

[B]

Robert,
You silly little boy. Barrons does not engage in shoddy journalism. If you want to be a savvy investor, you need to be brighter than the 60 watt lightbulb I use to keep the cats off my front porch.

++++++++++++++++++++++++++++++
While I still think Google has further to go on the downside, nothing ever gets to its final desination in a straight line. The options activity is starting to get way too bearish. I think we are getting to the opposite point of where we were a month ago on the long side with the bears getting too ballsy. Looks like they might get a healthy platter of their own pablum shoved right back down their gullet short term. Nothing is a guarantee. But this stock is way, way oversold even if it is eventually headed further south.

Posted by: B | February 14, 2006 at 01:35 PM
+++++++++++++++++++++++++++++++

Cool 30 point rally since that post. I'll take a bow. This is a pure squeeze play. Retards went out and loaded up on Google puts and shorts just as the stock hit a major support level. Short term sentiment as measured by many stock specific data was way too bearish. This is not a sustainable rally but a trade-able rally by smart market players. ie, Smart money taking from dumb people...like you. JUST KIDDING. I'm just kidding about all of the references to lightbulbs, dumb people, etc. It's a little satire to elicit a chuckle from other readers but my message is based in fact. This is typical behavior for a falling stock. Some times it's coined as a dead cat bounce. The fuel will run out soon enough. You'll see lower lows before higher highs. IMO.

[Robert]

enjoy the responses.

reiterate you look at Google, the company, AND goog, the stock, on a long
term basis. I dare say that none of you who have commented have made serious money on goog.....like 200 or 300 points. in my opinion this is just the beginning of a wonderful company and, frankly, the more technical stuff I read, the more comfortable I feel......dead-cat bounce, pullback, suckers rally, etc. oh, comparisons to CLEC's in 1999 is silly......Google earned net, after taxes ONE BILLION DOLLARS last year and will earn far more this year....even with the chef and the jet and the charitable program.
I can deal with a 25 per cent pullback in the past month on this stock and on aapl
because of the major moves they have made. these two companies are making some people seriously wealthy and you will all miss this. No great stock goes straight up....not Coke, nor Berkshire, nor McDonalds, nor Wal-Mart nor Microsoft..
Take a look at their charts early on in their histories.

[Sterling]

A more proper comparison for Google would be to a media company, because that is essentially what it is. Newspapers, television networks, yellow pages, etc. were able to take advantage of certain geographic hegemony and FCC monopoly rights to create their advertising empires. Google, on the other hand, has relied on two major competitive advantages:

1) A superior search algorithm that allows its users to usually find what they are looking for with minimal difficulty.

2) Brand equity as the premier internet search portal for many internet users. In other words, it is the most popular channel...currently.

Both of these have come about because of a lot of smart people being in the right place at the right time and offering a service that the market demands on both sides of the advertising equation. Nearly everything else about the company can and inevitably will be duplicated by competitors eventually.

This paricular topic was on a seperate subject. One of hubris and the way the company treats its investors. The phenomenal growth rates in revenue and profits are directly related to the company not only maintaining their edge on the two points above...but actually improving upon them. The fact that they are being extravagent with their resources is simply a signal to *some of us* that maybe they are enjoying the fruits of what their success has brought them a little too much. Taking their eye off the ball a bit. A little bit too fat and happy. Maybe now that they are polling analysts and actually trying to play the expectations game with Wall Street this is a different sign: one that they now realize and acknowledge that the resources that have been entrusted to them by shareholders deserves their attention and should not be taken for granted or even worse, squandered.

To the poster taking a bow on the 30 point rally, that was actually a 40 point rally now. Congrats. Although, it wasn't particularly hard to see that coming technically speaking once GOOG bounced almost directly off of the October 21st post earnings gap, which also happened to be the 200 day EMA. So we got a full 100% retrace of the entire end of year gains, and a 50% retrace of the gains since the April earnings gap up. I'm sure you've noted the relatively light volume on this rally as well. You bring up the bearish options activity, you also must have surely noted that the implied volatility on the calls remained extremely high all throughout the decline thus making it very difficult to make too much money on this rally. The options MM's aren't dumb either. ;) I'm looking for Analyst Day and Q1 earnings as catalysts for the next major move. My guess is a retest of the previous highs.

[Still Inside]

The people buying put-options on GOOG are about as dumb as people buying GOOG. This stock is not an investment, its a lottery ticket. A friend of mine once had a great description of the State-run lotteries: A Stupidity Tax. Fools and their money that will soon be parted.

[Victor]

The bulls are getting antsy again:
http://www.forbes.com/2006/02/24/google-investing-advertising_cx_ms_0224google.html?partner=yahootix

to be fair, I generally agree with the bull perspective. Google is a cash-printing machine at the moment. Anyone capable of reading its income statement knows this. The opportunity is still huge and we've just seen the bears beat the stock down by rehashing known, and often weak, arguments. It's a bumpy ride, but a fun one. I think it's time to get back on board.

[B]

I have to laugh at the supposed experts such as the gentleman quoted in the Forbes article. His rosy projections about what Google's business, internet ad business and all other folly five years from now shows me how big a dope he is. My tone becomes acerbic when I see five year projections on anything. It's even less than guessing and it's pure Wall Street pump. You think that twirp is self serving in his commentary if he owns Google?

Given Google's revenue stream five years ago was not anything similar to what it is today, how does he project what will happen in 2010 and beyond with the blazing speed of internet innovation, an unknown economic outlook and an unknown state of competition. I'll tell you how. He does idiot math more affectionately called Cramer math. That would be the use of two buttons on a $1.99 calculator. Add and multiply. Add up earning today and multiply out a piss in the wind growth rate for five years and there you have it. Wall Street idiotic logic at its best. Buying a stock that has a strong trend as Google did for a few years is a no brainer. Once the trend is broken, a re-estabilishment of the trend needs to be had before you can say this stock is going anywhere. Buy and hope investing of broken momo stocks is for underperforming mutual fund managers.

Just because you manage a $4 billion fund doesn't mean you really know shit. I could quote hundreds of them that underperform the market indices year after year. Make sure you back up the truck and buy more. Just remember that Yahoo went from $125 to $4 as ad revenue returned to trend and the economy slowed. Google under $100 if the economy hits the rocks is well within a reality.