Google reported earnings and missed analyst expectations. In after hours’ trading the stock is down $45 per share - or 9% roughly - to $516. The company started off 2008 in rough terrain, going all the way down to $520 but had recovered to $560. While long term bulls will view this as an opening to get into the stock, this top and bottom line miss will make investors wary of touching the stock at these prices.
Two things to consider (from a CNBC article):
Earnings Miss
Most shocking is the steep decline in paid clicks, one of the best metrics to measure Google’s underlying advertiser strength. Yes, Google posted a 30 percent gain, year over year for the fourth quarter, but only a 9 percent sequential improvement from the company’s third quarter. Bear Stearns, for one, anticipated a 10 percent increase; Piper Jaffray was at 14 percent; Citigroup was at 20 percent.
For comparison purposes, Google posted a 22 percent sequential paid click growth improvement from third to fourth quarter last year. The 9 percent move this year could suggest a marked slowdown in consumer interest ahead of holiday shopping; and does not bode well for those who might have thought Google was more insulated against an economic slowdown than others.
This was expected, and the fact that some felt that Google would be immune to any slowness in ad spend was ridiculous! We covered this in Effect of financial advertisers on Google.
More dangerous, frankly, is Google’s mushrooming headcount, now over 16,000! Can anyone say: Yahoo!?
The company also hired another 900 workers on the quarter, bringing full-time employment to 16,805 employees, even as the company said tonight that “we expect to make significant capital expenditures.”
Heavy spending, big-time hiring, and unable to meet Street expectations on the top and bottom line is a big problem especially for shorter term investors hoping for a shot of optimism from the company.
Frankly, while we think it’s great for Google to add to headcount - especially as it seeks to diversify revenue - it is taking on a lot more risk than added expenses alone. For one, Google’s success has largely hinged on its a) organizational structure (or lack thereof) and b) its reliance on automation. By crossing 16,000 employees, those days are gone. Google might become the next Yahoo! (a common criticism of Yahoo! is that it grew too large, too fast). I covered this challenge in Does Google have any people skills?
Google is at crossroads in the sense that it needs to start managing earnings better. If it chooses to avoid giving guidance, that is fine in Hippieville, but on Wall Street, this means that analysts will do some guesstimating and even despite strong numbers, when analysts are disappointed, investors shall bail.
Note: no position in Google, long YHOO
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