It must be tough when you just keep beating estimates quarter after quarter, like Google has done ever since it became a public company — until now. Revenues and profits have continued to rise by the mid-double digits pretty much every time the company reports, and along the way plenty of people have become accustomed to the idea that it will continue more or less forever. And most of those people have been selling in the wake of the company’s much-ballyhooed “miss.”
A couple of things: 1) This is partly Google’s own fault for not providing “guidance” to analysts about how its business is doing, the way most companies do (that is, if Larry and Sergey and Eric even care, since they focus on the long-term and aren’t concerned with quarterly results, as they told us in the prospectus). 2) Describing financial results that came in a penny lower than estimates as a “material miss” is overstating things more than a little, I think — and revenues were only 1.7 per cent lower than estimates, which were likely jacked up anyway.
As my friend Paul Kedrosky pointed out to me, the reaction of Google’s stock — which was down by as much as 9 per cent in after-hours trading — is likely as strong as it is because a) this is the first miss in Google’s history and b) it makes people nervous about how much of an effect the weak U.S. economy and advertising market are going to have on the company in the future. Perhaps some of those who said Google was immune to downturns might be regretting their sanguine comments.
At the same time, however, I think calmer heads should remember that Google’s stock has already dropped by about 20 per cent from its recent high, and that after-hours trading is often the province of nervous Nellies who sell at the first whiff of trouble. It sure doesn’t look to me as though Google’s business is coming apart at the seams.
As expected by just about everyone, Yahoo released fairly lacklustre numbers late Tuesday — and also used a word that you should try never to use in an earnings outlook: “headwinds.” As Rob Hof notes at BusinessWeek, this is code for “results are going to suck until further notice.” The stock was off about 10 per cent in after-hours trading, and that took it down near $20, or 40 per cent lower than it was three months ago.
Henry “I used to be a famous Wall Street analyst” Blodget has a pretty good rundown of the numbers at Silicon Alley Insider (although I must admit that every time he does that kind of thing I wonder whether he isn’t getting a little close to the line, given his settlement with the SEC). The fact is that Yahoo is cutting 1,000 people — as was widely rumoured last week — and its future guidance was so-so at best.
Share of the search market flat or falling, profit margins lower, new deals with cable companies bringing in lower revenue — not a pretty picture. but Yahoo still has high hopes, according to Sue Decker. Unfortunately, Yahoo shareholders have had some pretty high hopes as well, and about all they have to show for them so far is a share price that has been sliding down the slippery slope for the past year.
Gobsmacked. That’s what the Brits call it when something jaw-dropping happens and you can’t think of anything to say. Microsoft’s blockbuster quarterly results kind of fall into that territory for me. I have to admit that I’m one of those skeptics who has been talking about the gigantic software maker as yesterday’s company: slow-growing, boring, etc.
Don’t get me wrong — I still think that Microsoft is most of those things, except maybe for the “slow growing” part. Who knew that the company had a quarter like that in it? Profit up 23 per cent to $4.3-billion, revenue up 27 per cent to $13.8-billion. To put that in perspective, Microsoft made almost $50-million in profit a day during the quarter, which means it took less than a week to pay for its recent Facebook investment.
Apparently the skepticism about Vista (which I have also shared) has been more or less misplaced (although it is important to remember that the 88 million copies sold are to retailers, not to consumers), and a strong Halo 3 launch also boosted the software behemoth’s bottom line by a substantial amount. And yes, all you Microsoft critics can rest easy — I know that a lot of those Vista sales and Office sales are a result of Microsoft’s virtual monopoly.
The only issue for Microsoft now is the curse of inflated expectations: can the company produce a quarter like this one every time? Unlikely. And if there’s one thing the company likes to do, it’s to talk down expectations and then outperform. That could be a little harder to do now than it has been in the past.