Google Needs Guidance Guidance

Giving guidance as a public company is one of those things that you have to practise. There is a knack to being empirical and elliptical at the same time; it’s not something you just do, like taking a turn at bat at a company summer party.

Google learned that tonight. After saying over and over that it doesn’t give financial guidance, the search company turned around tonight and on the conference call it gave financial guidance, right in the same breath as it said it doesn’t give guidance:

Eric Schmidt, Google – CEO

I do want to remind everyone, and I think everyone on the call knows this, that we don’t give guidance. I would like to emphasize that Q2 and Q3, particularly Q3, the one that we’re now in, that we will be announcing in October, is historically a slower quarter for sequential growth for both Internet traffic and for advertising expenditures as to the summer patterns and international behavior and that kind of thing. Last year’s quarter was particularly strong in Q3 because of improvements in our ability to monetize traffic and perhaps because of the publicity surrounding our IPO approximately a year ago.

Did you catch that? Schmidt said that Google doesn’t give guidance, and then in the very next sentence he explained that Google, a momentum/growth company, is seasonal and next quarter looks dodgy. That is unnerving to investors, sort of like telling them that the company actually gets a significant percentage of its profits from cyclical rare earths.

The unsurprising upshot? Google’s shares plunged in after-hours trading, falling more than $19, which takes the company back below the $300 mark. That’ll teach those Google guys, won’t it. Don’t give guidance when you say you’re not going to give guidance. There is nothing investors hate more than being jolted out of their blissful ignorance.

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Comments

  1. Shreyas says:

    True, however to be fair to the more Mature Individual amongst the kids, Schmidt has pretty much said the same thing every quarter for the last three qrtrs, ie. we are cautious, I just think he emphasised it a bit more this time.

  2. Paul K. says:

    Yes, good point. It’s not new news, but the nuance was different this time around. Eric (the adult) raised the issue early and emphasized it more.

  3. Ed says:

    Great point!
    Maybe we’re seeing the “Feiler Faster Thesis” in action, that is:
    “The news cycle is much faster these days, thanks to 24-hour cable, the Web, a metastasized pundit caste constantly searching for new angles, etc. As a result, politics is able to move much faster, too, as our democracy learns to process more information in a shorter period and to process it comfortably at this faster pace. Charges and countercharges fly faster, candidates’ fortunes rise and fall faster, etc.”
    c/o Mickey Kaus
    http://slate.msn.com/id/1004812
    Why can’t the same thing apply to investing?
    Google’s thought process: “We said we wouldn’t give guidance, then stock price gains made us one of the biggest companies in America, suddenly too many people cared about our performance, now we have to give guidance!”
    Faster to grow, faster to get hyped up, faster to react to pressures…
    Warren Buffet’s no-guidance approach doesn’t work so well for companies that are so heavily hyped.
    2 analysts “cover” Berkshire. 33 analysts cover Google.
    All that talk around the IPO was hubris; here is a company at their IPO wanting to show the parallels between them and the richest man in the world. Of cource, Buffet built that fortune over 40+ years by buying companies no one wanted, and everyone wants a piece of Google.
    Thanks to the internet and cable news, the word on Google got out faster, the business grew, and now the parallel is that Google is better than Microsoft because it grew so much faster! Does this really man Google is a better company?
    Not really – just that they grew up in a radically different environment.
    Rather than think about how Google is better, they should show some respect to their elders, who built the computer and software infrastructure over 20 years that allowed Google to jump into the game and develop an site that spread like wildfire because of that infrastructure.
    Faster to grow, faster to fade…
    Google can only really protect their position through constant innovation, and it gets tiring to run at 100 miles per hour. And thinking of search engine market share as a “monopoly” like an OS is crazy.
    Microsoft has some big, fat, hard-to-challenge monopolies that they’ve been sitting on, and should continue to milk for a while. Let other people spend the calories to innovate; they’ll just create a dumb copy of you later…
    Faster to grow, faster to get hyped up, faster to react to pressures…faster to stagnate?