Well, all the nervous hand-wringing about Yahoo’s poor results and what they might mean for Google turns out to be unnecessary. The search behemoth turned in a stellar quarter that thrashed analysts’ estimates fairly soundly, and there was no mention of any weakness in advertising (which Yahoo blamed for its 37-per-cent drop in profits). In fact, Google not only didn’t feel the same pain as Yahoo — it helped dish some out, by continuing to take market share away from Yahoo in ad-related search.
Thanks to Google, people are probably getting used to the idea of a company with almost 10,000 employees and revenue of more than $8-billion doubling its profit and boosting its sales by 70 per cent in a year — even though that is almost unheard of. I think Microsoft in its heyday was probably the only company that grew like that and managed to keep it up for any length of time. In any case, it is so unusual as to be almost freakish.
Another thing that sort of jumped out at me as I looked through the numbers: Google went from having 7,900 or so employees last quarter to 9,450 or so this quarter — meaning it hired about 1,500 people in three months. That’s an average of 500 people a month, or about 25 people every working day. That is mind-boggling. For better or worse, there is nothing like this company out there right now, anywhere.
Blogging Stocks live-blogged the conference call. And even my friend Paul Kedrosky — not an easy audience — thought Google’s results were pretty darn good.
Google may be working on a version of the Ubuntu Linux OS, as reported by The Register, but maybe it should be spending a bit more time on a good accounting app — it just missed Wall Street’s estimates for both sales and profit for the latest quarter. The stock dropped by as much as 19 per cent in after-hours trading.
Does that matter to the company’s long-term future? Probably not. But it will likely take some of the shine off for the momentum traders, of whom there are likely a lot. And there were some troubling signs in the numbers at first glance — even if you assume that the analysts’ estimates were inflated (which they likely were). For one thing, the company’s tax rate was substantially higher than expected – 41 per cent instead of about 26 per cent – and costs were also higher than anticipated. Too much money being spent on projects like the lame addition of bookmarks to the Google toolbar perhaps?
One caveat: Even assuming that a majority of analysts are craven weasels (just kidding, guys) it is difficult for analysts to analyze a company that is not only growing at an incredible rate, but which refuses to provide any guidance on future results, or any details on current operations. That’s going to make future surprises even more likely.
As usual, some of the hysteria that is common with after-hours trading (when there is less volume and therefore more volatility) dissipated on Wednesday, but Google’s stock was still down almost 10 per cent at one point in the morning. Not surprising, given the number of momentum traders that are riding this particular horse. Although UBS has downgraded the stock to “neutral” – in other words, closing the door after the horse has left the stable – Google’s explanation that the higher tax rate accounts for the bulk of the miss seems plausible. And the company has said it will provide more details on that kind of thing.
In the end, there’s no real smoking gun in these results for the Google bears – although my friend Paul Kedrosky notes that it’s worth asking why the tax rate was so much higher than expected. And whatever the answer to that question, Google’s “miss” serves as a healthy warning to investors. As the old saying goes, bulls make money and bears make money, but pigs often get slaughtered.