Real Message of Google Analyst Call: We Care

Google is moving through a standard maturation process, one typical of many newly public companies that initially can do no wrong.  The process begins with the company saying "We don't care about Wall Street," an idealistic stance that is easy to maintain when the stock is going up 5 percent a day.  Once the stock stops going up--or, worse, starts going down--the process shifts to "We still don't care about Wall Street, but we are going to try to communicate a bit better."  And then, ultimately, when management realizes that the bloom really is off the rose and the stock won't suddenly return to its moonshot trajectory, the company becomes a normal public company: "Of course we care about Wall Street.  Shareholders are our second-most-important constituency, and we knock ourselves out every day to do well by them." 

Judging from yesterday's conference call and vastly improved public relations decisions over the past few months, Google is somewhere between steps 2 and 3.  The company cares, and should care, and is taking steps to demonstrate that it cares.  This won't help the stock go up, unfortunately--the substance of what is communicated matters more than the way it is communicated--but it will certainly make people feel better about owning a stock that is no longer rising.  So hats off to Google for continuing to mature.

And while we're at it, what was the substance of yesterday's call?  After reading an excellent summary from Mark Mahaney at Citigroup (download available below), here's my take:

• Google is actively exploring ways of integrating display advertising into its site.  This should create a large additional revenue stream over the next year, one that might help offset slowing search growth.
• Google believes there is still upside to keyword pricing, suggesting that search growth has not yet hit a wall.

Takeaway? Ongoing modest revenue deceleration, but less than if Google weren't getting into display advertising.  Ongoing modest multiple contraction, perhaps offset by growth in free cash flow.  Stock in a $300-$450 trading range until major new information (such as an economic downturn or major revenue boost from display ads).

Reminder: I don't own Google, and this is not investment advice.

Comments

[roy]

First.

[Ryan]

second!!!, looks like Troll with be at best third!

[Victor]

third. kill troll is a dick.

[Victor]

poor troll, i feel sorry for him. his life revolves around getting "first" and now he can't even do that. but don't top yourself troll, there are other things to live for. Alternatively, you can sit at your computer 24x7 to try get "first" everytime, but that'll just prove to everyone what a loser you are.
Fourth!

[King Troll]

FUCKKKKKK , I was on all fucking morning then left to John Battelles board and marketwatch. i come back and you fuckers get to be first. So now you bitched will be competing for my spot. We'll see about that.

[Victor]

Google payments are coming:
http://www.theglobeandmail.com/servlet/story/LAC.20060601.TWINGRAM01/TPStory/Business

[Neal S. Lachman]

It is a good thing that Google is maturing, indeed. No matter how large capitalization a company has, when it goes public it has fiduciary and reporting duties. The whole public system including the reporting and guidance necessicities are part of the game.

You are right to compliment Google on this way forward. I like it, too.

[Market Participant]

Hah, google is tanking. And now GOOG insiders are trying real hard to give the wall street hype machine some more grist for the mill. $2000 GOOG?

The only question is when advertisers wake up to the clickfraud problem, and stop paying for google CPC ads.

[stockwatcher]

Yes, you are right: "Google cares"

About itself and keeping the bubble alive.

Just a bunch of nonsense discussed on the conference call, nothing but pablum.

[camaravivipan]

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[Chetan]

I don't think they still care. Had they cared then JPM wouldn't have to conduct a study to analyze their modified search algorithm. Excerpts from Battelle's blog Our survey included 20k+ keywords, and we tracked the coverage, the number ads, and the positioning of ads. I know many companies like Infospace would be willing to share their CORE component with Wall St. analysts, but Google won't.

[money]

To put this another way, same old same old eternity rings and money