Silicon Valley Shrugs Off Google Hiccup

20 Comments

Silicon Valley is leaving knee jerk reactions to Google’s lukewarm quarter to the Wall Street crowd. That was the finding of my reporting yesterday after the search giant reported its earnings. I filed this report for CNN Money, that went live this morning. Though, I never got to quote him for the story, David Hornik of August Capital sent a very succinct message that sums it up nicely. “I suspect that every one of my startups would be thrilled to miss their earnings by *only* making $1.92 Billion in the quarter,” he says. “Google’s performance remains spectacular, so I can’t imagine that it will negatively impact the startup climate.”

Toni Schneider, an entrepreneur who recently left Yahoo to become a partner with San Francisco-based True Ventures, sees parallels between how Google and Yahoo were treated by an over-optimistic Wall Street. “The numbers are pretty good and everything is growing,” says Schneider. “I don’t see any gloom or doom.”

Jeff Clavier, who understands online advertising and search game pretty well pointed out that

Google, which sells ads on its own Web sites as well as ones run by other publishers, is shifting more ad revenues to its own network. According to Clavier, that indicates that Google’s core business of search is improving.

Still, there is school of thought that (public market) investors should tame their expectations, especially because Google has done such a good job in the past. The company some feel has cleaned up in the keyword advertising business, and needs to find new areas of growth. “Size is the enemy of growth,” Scott Potter, a general partner at venture capital firm San Francisco Equity Partners. Google faces the challenge of growing faster than the overall shift of ad-spending toward the Internet. It will be harder since MSN and Yahoo are getting energetic about their own advertising plays. Maybe that’s why the China deal was done – sheer economic pragmatism being put ahead of the ideals of twenty-something founders.

I don’t know about others but there had been a sense of euphoria that had taken over the Google, Yahoo and other stocks. I think that sentiment has broken. Six months ago, China deal would have been hailed by Wall Street and tacked another $50 a share to Google stock price. Similarly, a good (not great) quarter is being viewed as end of the world. That’s the price you pay, when you are priced for perfection – and perfection as we know doesn’t exist.

CNN/Money: Shrugging off Google’s miss

20 Comments

Dave McClure

my completely-gut-and-not-based-on-any-math-whatsoever guesstimate is GOOG is definitely worth $150, probably worth $250, possibly not worth $350, and no way in hell worth $450 or higher (today, anyway).

full disclosure: i was interested to buy shares in the IPO at around $100-125 with optimism, and did so with extreme glee at the actual $85 IPO price. i sold 1/3 at $100, another 1/3 at $125, and the final 1/3 at $180 less than 4 months later — and at that time, i felt like it was just getting too rich for my taste… i was pretty happy with more than a 50% return less than 6 months, but i was no longer bullish at that price.

now based on the last 4 quarters of earnings, had i not sold i’d probably now feel comfortable hanging in there at $300, and buying anywhere south of that. if they pull out another 4 quarters of revenue AND earnings growth, then maybe i’d be comfortable at $400 — but by then who knows, the market may be pricing them at $600.

in any case, the game is way too momentum-driven for my blood these days. i’m a huge fan of Google the company, but not a huge fan of GOOG the stock.

my $1.02,

  • dave mcclure
flabingo

Google is in a growth industry with plenty of capital, qualified management and the committment to hire very qualified people and share the company’s success with them. The mangement is quite skilled in the technology and have the advantage of youth on their side. If I was a young person who was “scary smart” and offered a job at Google, I would take it. I think that their system of letting the world be their beta testers in not crazy. I just finished reading Battelle’s book and realize that they have challenges to deal with, but don’t we all. Also they seem to respect money given the way they started and let the pr take the place of a big marketing budget. I just wonder how much stock Tiger Woods owns.

Carl Howe

I think too many people think that Google is managing its earnings to please Wall Street. As I noted last night, Google explicitly said in their S-1 that they weren’t going to do that. They made an explicit decision to focus on the long term and to ignore the quarter-to-quarter results. I think their results showed that they still have exactly this point of view.

The bottom line: don’t think about Google quarter to quarter. Think about how well they are doing at trying to make all the world’s information accessible. From where I sit, they are doing pretty well, given they have the most influential global brand, nearly a majority of all searches, and certainly one of the most powerful ad networks on the net.

Erik

Sean,

I started at Y! when it was <200 people, I left when it was >3,500 people. When I started at Y! I was interviewd by 12 people from the COO to a surfer. By the time I left, HR vetted everyone and the hiring manager chatted for a half hour or so and an offer was made. Either hiring screening is slipping or the managers are doing nothing other than interviewing. Neither of these things are good. Even if they are getting good people, I very much doubt that Google can integrate all these people they’re hiring effectively at the rate they’re coming in.

I don’t see Google’s weakness in their engineering group, I see weakness in their product management. You can have the smartest people in the world on a product and if they’re all going in different directions they are not going to build good stuff.

Sean Doherty

This dip just bought Google 15,000 new IQ points (100 new engineers each with 150 IQs). Here’s the analysis:
They’re a confident bunch at Google. I expect they all believe the price will bounce back very soon. In the interim, this price dip let’s them offer new employee stock options at lower prices and continue to build their brain trust.
Can you imagine the challenge of trying to convince super-smart engineers to come work at Google: “Trust me, those $450 options are going to be worth a fortune!” The price dip (and volatility) also reduces the potential negative accounting impact from options that were granted in the recent past.
I think Google execs know that growing the right employee base will produce the most sustainable value and temporary price anomalies are a free pass with the IRS to offer cheaper options.

Erik

I think Google’s problem is much more fundamental.

They have yet to prove they can build a complex consumer product well. They have nothing anywhere nearly as complex or sticky from a user standpoint as Y! Finance or Y! Games.

Google does search very well (mostly because of the simplicity of the consumer experience).

Google does mail well (but so do lots of outfits). Mail is a loss leader to drive registration data.

Google does maps well.

Froogle is terrible

News is mediocre

Video Store is terrible

Their advertiser tools are a pain to use at best.

They have an awful lot of people working there for the number of products they have.

Mull

Not that Om needs defending, but he has never said that it was a surprise that Google stock would go down. Also, just because it dropped what it did or even more doesn’t mean that Google isn’t a good company. At $400 a share, it might not be a good investment though.

One thought I have is that with a lower stock price, it may be harder for Google to attract good people (options are nice when you always go up) and it might free up some money for new R&D or when needed to go out and buy someone. So if anything, the stock drop is good for the likes of Microsoft, because maybe it will keep Google in their own sandbox, instead of going into Microsofts. Personally, I think maybe Microsoft is playing in the Search Ad business just to keep Google away from Microsoft’s business. Also, I think they were involved in the AOL deal just to raise the price that Google would have to pay. I don’t think they had any real interest or intention of giving TW/AOL any money, I think they just wanted to make Google pay more for the agreement.

Back to the stock drop, bubbles always go to high and drop to low, thats the way of the market. Could Google drop another $100 or so in shares? Who knows? If anyone knew that, they wouldn’t be posting on the internet, they would be too busy managing their private island.

steve

Factual error nitpick: David Hornik of August Capital is wrong when says “I suspect that every one of my startups would be thrilled to miss their earnings by only making $1.92 Billion in the quarter.” Google’s revenues for the quarter were $1.92 billion. GOOG earnings were $372 million.

Also, I don’t know Mr. Hornik but I wonder: is his displeasure not keenly felt and known when any of his startups badly miss making the business plan — even if the raw results are OK?

patil

I am not a great chartist, but looking at the after hours trading pattern, I could sense their was strength in the stock. What usually happens is the tug of war beteeen the bulls and the bears. Bears tried to hammer the stock but looks like the Bulls are in no mood to give up. The Bull operators must have bought all the stock at lower levels. In the past 3 months, everytime Yahoo Finance folks wrote about Google nose diving below $420, the Bulls have supported the stock.

Google’s valuation is beyond “Om” or “Doris”. No offence. It is a growth stock and laws of Berkshire don’t apply. Let see what Safa has to say. CAUTION! CAUTION! Larry and Sergey are selling their own stock(options) as if their is no tomorrow.

Om Malik

Joe,

you are missing the point here. did i say anywhere, read the post and the article again, that the stock price and expectations are realistic? no i did not.

i am not saying that the huge stock prices etc are realistic. if you have been reading the blog for past few months, i have been consitent in saying guys, hang on a minute, lets not get too excited.

i am reporting what silicon valley is thinking right now. the report on cnn money shows clearly what the silicon valley community thinks.

on the point of stock price, seriously i cannot think why people should pay $200-$400 for this company. i am not an expert on what motivates people’s greed, but in the end that’s what it is.

clearly at $6.2 billion in sales, if Google is start-up, then i have a waist size of 26. still, i think the knee jerk reaction was clearly on part of the same wall street, that bid up the stock.

Joe Hunkins

Anybody, especially siliconized, who suggests that there is no doubt in the future of a company evolving as fast as Google is simply not paying attention. With the capitalization exceeding that of some nations, Google is hardly comparable to a startup.

If this was a “knee jerk” it was more consistent with reality than the rising price last year. I’m simply floored by those, including you Om, who should know better to imply that this time the huge stock price and expectations are “realistic”.

Oh, really?

Om Malik

actually doris, i have been saying this for the longest time. 475$ is just plain dumb, and people have not learnt from the past. go read my previous posts, especially google-2000. from january 6th.

“Google punters are going get their shins kicked….. hard.” http://gigaom.com/2006/01/06/google-2000/

doris

Why is the $75 plunge knee jerk when the $400 odd increase isn’t? It shows your bias on this article. Face it. Google is not doing as well as people thought. Asia is not going well. They can’t even figure out their tax structure. The stock should come down. Don’t be ridiculous.

Om Malik

doris, and david … analysts don’t make wall street. the knee jerk reaction was $75 plunge in the shares in the after markets. read previous post. if that is not knee jerk, then what is. analyst reports are dressing for ma-and-pa investors. no one, especially big gambling hedge funds take them seriously.

doris

Wall Street’s knee jerk reaction? What analyst reports are you reading? Every one I’ve looked at this morning have left estimates the same. One (Pru) even raised their rating. This is standard Wall Street non-knee jerking. It’s called anchoring. You’re making up an event to write about something. No one on Wall Street is knee jerking. That’s Wall Street’s problem.

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