In today's analyst call it was hard to hear the nuanced messages above the roar of a giant earnings miss and the stock tanking nearly 20% at one point after hours. But the well-scripted remarks from Schmidt, Page, Brin and Reyes, while reminiscent of Greenspeak, actually contained some important hints for the Google investor.
At least twice during the call we heard that more innovation will be happening in 2006 than in prior years. Eric Schmidt said, "the rate of innovation will increase in 2006." And George Reyes answered an analyst's question about capital investment by saying, "R&D spending will increase as the pace of innovation increases in 2006." Since Schmidt and Reyes used nearly identical language, it's clear that their messages were coordinated and intentional. I take this to mean that we'll be seeing more new products and search enhancements delivered in 2006 than in 2005, which was itself a year of torrid innovation.
And in reply to an analyst's question about rising sales and marketing expenditures, we heard that Google is pulling out all the stops and directing "extra investment to international markets" in order to chase "exceptional opportunities."
Google is pressing its advantages in engineering and innovation to, in Schmidt's words, "deliver innovation at scale." It's something that few if any competitors can match, and Google is doubling down on their investments to cement that advantage.
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| Google's prospects from a Google user and independent investor |
Accelerating the pace of innovation - 1/31/2006 11:35:39 PM
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Death and taxes - 1/31/2006 11:27:00 PM
Google missed analyst expectations and got knocked for a loop in after-hours trading. Some say it's not so bad, since the entire shortfall is explained by an unusual and one-time change in the effective tax rate, and not by a flaw in the core business. Here's an example of that reasoning from Mark Rowan of Prudential Securities (not available online):
Fourth-quarter pro forma EPS increased 68% year-over-year to $1.54, missing our estimate of $1.74 and the consensus estimate of $1.76 by a significant margin. However, we note that the culprit was the company's 4Q'05 effective tax rate of 41.8% (vs. our expectation of 30.5%), as a higher proportion of the company's expenses were allocated to international operations, leading to a greater percentage of profits taxed at higher domestic tax rates. If the tax rate had matched our estimate, we calculate 4Q'05 EPS would have been $1.78, a couple of pennies above the consensus estimate. Prudential actually raised their 2006 earning estimates and target stock price tonight after seeing Google's fourth-quarter numbers. Their new target is $500/share, up from $400. Based on continued strength in the fourth quarter, particularly advertising growth on Google's own web sites, we are raising our forward estimates. We now expect Google to earn $9.31 per share in full-year 2006 (up from $8.81), and we are introducing our full-year 2007 estimate of $13.56. But let's call it like it is, shall we? Wall Street's target wasn't really the published EPS of $1.76, since expectations that Google would trounce this number were already built in. And BuyGoogle's blather about a blowout quarter was horribly wrong as well. The net result is that Google had another extraordinary quarter -- net revenues again rising So where does that leave us? For me, I'll be much more hesitant to play short-term trading games based on guesses about Google's quarterly performance -- this quarter those trades cost me dearly. But the company is sound, all the numbers are going in the right direction, and if the numerous references to accelerating the rate of innovation in 2006 come true, it should be a good 2006 for Google. Buy low, sell high. |
Clearinghouse for protest ideas - 1/30/2006 09:21:00 AM
As a citizen, Google user, and Google shareholder, I have a strong perspective on Google's decision to aggressively censor search results in China. As a citizen, I believe that Google is missing an opportunity to assert moral leadership that can influence closed societies much better than collaboration (or as Google calls it, "engagement"). As a Google user, I no longer trust automatically Google's results, and I no longer give Google carte blanche credibility.
And as a shareholder, I think that Google is seriously devaluing its more valuable asset -- its trust, image and brand. This will be bad for users, bad for society and bad for Google. There are many ways to make my voice heard. And since there is similar protest talk elsewhere on the Web, I'm trying to develop a clearinghouse of protest or direct action ideas. So I've created the Protest Google site where other concerned people can comment, or join an email list to stay informed. Google still has a window of opportunity to reverse their fateful decision to compromise their Don't Be Evil principles. If you're concerned about this, join me in making our voices heard. Note: Since this should be an open and participative process, I've tried to use all-Google tools -- Blogger, Gmail and Groups. Should we need to conduct any actions requiring the element of surprise (all legal, of course), I will switch to non-Google communication channels. Site: ProtestGoogle.blogspot.com Email: Censorship.Is.Evil@gmail.com |
Google analysts -- ask about censorship and brand image - 1/30/2006 08:20:44 AM
Google will release its much-anticipated fourth-quarter financial results tomorrow, and will hold a conference call with analysts at 1:30 PST. After scripted soliloquies by Schmidt, Page and Brin, the Wall Street analysts get a chance to ask questions. These can be interesting questions about monetization and new products (which Google usually refuses to answer), or mundane questions about tax rates and foreign exchange assumptions. There should be a lot of interesting topics this time, including the AOL transaction, the Google Video Marketplace and Google stealing more market share from Yahoo and MSN.
But the biggest issue right now appears to be the potential damage to Google's image and brand of their decision to aggressively censor search results in China. This has become more than do-gooders whining about freedom and human rights -- it has the potential to seriously devalue Google's biggest intangible assets -- trust, image and brand. More than any other asset, from superior search technology to massive computing infrastructure, Google's image is the one asset that competitors can't copy. If Google is sacrificing this asset to obtain me-too access to the Chinese market, it would be more than an ethical compromise - it would be a major strategic blunder. So Mark Mahaney (Smith Barney), Safa Rashtchy (Piper Jaffray), Benjamin Schachter (UBS), Heath Terry (CSFB), Lauren Rich Fine (Merrill Lynch), how about asking the most important question of the call tomorrow, and see if you can get an answer: "You stated that the decision to censor search results in China compromises your mission, but you believe that benefits of censored access justify compromising your principles. Since it appears that there is a lot of media visibility to this issue at the same time Google is fighting the Department of Justice over access to search keywords and URLs, how will Google avoid irreversibly damaging its most valuable intangible asset -- Google's trust, image and brand? In short, if Google follows the competition into an ethical quagmire, how will Google avoid becoming just another conventional company?" |
AdSense boycott over Google's censorship - 1/29/2006 09:44:00 PM
Some are calling for bloggers to boycott Google's new censorship policy by removing AdSense ads from their sites. While this mini-revolt isn't likely to have any affect on Google's financials, the ongoing outcry and damage Google has done to their image and user trust may be a significant issue.
To show solidarity with the anti-censorship, pro-Don't Be Evil perspective, I've removed AdSense ads from the BuyGoogle site. But I've kept my Google stock and option positions, which may make me as much of a hypocrite as Google is. |
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