What Google's Reyes Actually Said

Well, thanks to modern technology, we can all hear for ourselves exactly what George Reyes said this morning.  What he said was definitely important news, but it was subtly different than what was reported in the media and not as much of a bombshell.  Because of the webcast, it was not a Reg FD issue.

In the Q&A at a Merrill Lynch conference, Reyes was asked:

Q: Looking back to Q3 2005, was there anything in there that was maybe sort of one-time in nature that accounted for such strong revenue growth...?

A: So we went through a period of probably 18 months where we thought we had...well, let me characterize it...we had what was called a RevForce initiative--Revenue Force--which was really a team of really very bright technical engineers that were trying to tweak and optimize the ad system, and not--you know in very very responsible ways [Don't Be Evil!]--and that sort of paid off nicely with the fruits of that labor. 

And what's happened since then is that we got so good and so efficient at that back then that really most of what's left is just organic growth, which means you have to grow your traffic and your have to grow your monetization.

But so, I think, we're now, clearly our growth rates are slowing.  And you see that each and every quarter.  And we're going to have to find other ways, you know, to monetize the business.

At the end of the presentation, someone (finally) followed up.  Reyes "clarified" some earlier remarks about monetization by returning to the old saw about revenue growth slowing because of the "law of large numbers" (the universal excuse, but, in this case, a valid one).  Pressed by a third questioner--with the stock off $50--he was asked whether he was seeing something within the quarter that made him cautious about revenue growth or whether it was just the law of large numbers.  "Law of large numbers," he said.

Translation: Google's revenue growth over the last 18 months has been juiced by its monetization efforts (more links per page, more relevant links, etc.).  Now that this low-hanging fruit has been picked, growth will now slow to organic click and PPC growth rates.  Alas, Reyes did not say 1) what those growth rates are, 2) whether they are slowing, or 3) how much, if at all, Q4's disappointing performance benefitted from the last of the monetization efforts.  It is possible, in other words, to conclude that Reyes didn't think he was saying anything new, because Q4 had already illustrated that the company was returning to organic growth rates.  Personally, I think the news is a bit worse than that, but it's nothing like the mid-quarter negative preannouncement it seemed initially.

Comments

[Wizzbox]

Henry, it looks to me like the key point still is that we don't know much about what to expect in 2006 and Google still isn't going to inform us. Worse, they aren't even giving details on the impact from these RevForce Initiatives.

This may not be that big of a deal, but it could pave the way for a Barron's scenario.

[k]

Now some sell side ANALysts -- who "think" they know the company's financials and its growth rate better than its own CFO -- are defending the stock vigorously, and probably there will be more out in droves in the next few days to do the same.

What's new? Of course they may have many big clients who want out.

[Anon]

K,
I thought that was hilarious after the CFO made corporate performance statements the at least two analysts came out and basically made statements that were based on insanity. Could actually be somewhat interpreted as contrary to the CFO's statement. More WS pump.

[Henry Blodget]

What did the analysts say, exactly? If you have the notes, please forward to share@internetoutsider.com.

[Anon]

Henry,
If it's something you really want, I would look at the tape of CNBC this AM. I'm trying to recall the time but it was before noon that I heard the soundbites of on CNBC. They mentioned the analyst's names so you could likely find some type of press release or documented statement.

[ZF]

This highlights something else about Google's culture: the way they seem to need to include the word "so" in every other sentence, often as the first word.

On the Googleplex campus itself it's become so pervasive it's weird. They don't seem to hear it themselves.