Google: A Miss on Soft Revenues

Google’s results are out, and it looks like we have a species of miss from the search/advertising kingpin. Keeping in mind that the company doesn’t give guidance, per se, net revenues, while up 17% in the quarter, were $3.39-billion, below the $3.45-billion analyst consensus. At the same time, earnings came in at $4.43 a share, a penny below the $4.44 consensus. The stock is off 9% in the afterhours, dropping $40.

The call starts in a couple of minutes, so we’ll have more color then, but this is market-rattling stuff. As I have said here a number of times recently, including yesterday, there has been ample indication that advertising inventory saw an air pocket late last year, which would have contributed to keeping revenues below consensus.

Looking back over the scorecard I posted here yesterday, headcount came in in-line. Traffic acquisition costs were up as a percentage, which hurt the bottom line a little more than expected. No color in the press release, however, on advertising conditions in the quarter, or in the current one, which will be the central preoccupation of most investors looking at this release. The main factor in the miss appears to have been weakness in overall revenues, perhaps late in the quarter, which is what most of us have been fretting about.


If anything material comes out on call, I’ll put it here.

So far only thing is Google saying that it was entirely unaffected by macroeconomic weakness in the quarter, which seems implausible. Putting a finer point on that, Google execs are hypersensitive about any analyst questions even implying “softness”, with three Google speakers just now simultaneously gang-tackling Mary Meeker during the Q&A, all denying, with carefully pre-cooked facts, even a hint of there being softness/weakness/etc. out there. Gosh, I guess they don’t read the papers.

Speaking of Ms. Meeker, I should also mention that, as usual, Morgan Stanley’s Mary has produced the longest and most meandering question-cum-comment on the call. And it could have just been my half-plugged ears, but it sure sounded like she said something about “Enron” at the beginning of her question.

Overall, it isn’t that the long-run Google bullish story is no longer intact — I remain positive on Google, both straight-up, and as a consolidator — but investor nervousness about weaker growth in online ads in a crummy economy is entirely understandable. And with Google more or less owning that market, it’s going to get knocked about for a while, like it or not.


  1. What about $$ weakness – didn’t that help them?

  2. thefamilyguy says:

    That is why I consider this miss to be a much much more bigger miss than is being portrayed in the media — even with > 60% international revenue and such low $, they still could not even match up to the numbers expected.
    Its a huge miss, imo.

  3. chico strudelfest says:

    Yahoo is going to get smacked because of this too. Incompetence and a shitty market is one tough obstacle.

  4. I’m still amazed they are growing 50% a year though. Regardless of whether the stock price is too high or too low this is just a friggin juggernaut of a company.

  5. Yup, no question that seeing a company this size growing at 50%-plus is an amazing thing. Unfortunately, investors still want to see that deceleration happen at a manageable rate, and that was what gave them pause this quarter.
    On the exchange rate gains/losses point, Google gained $93-million in consecutive quarters from exchange rates, and it gained almost $200-million year-over-year. In the absence of exchange rate gains there is no denying the quarter would have been less pleasant.

  6. thefamilyguy says:

    I think this is the end of GOOG (share price levels) as I see it. An year or two until the economy gets its mojo back to support such lofty valuations and I honestly anticipate that MSFT would have come on pretty strong in these two years in advertising, if not as much in search.
    Display advertising is the trump Eric tried to play today too and I think Yahoo and MSFT are attacking this very thing with their aggressive acquisitions(Blue lithium, Right Media and Aquantive respectively) and perhaps also a realization that GOOG is/will be the search leader after all. I see GOOG having a very tough competition to earn display ad dollars — and it will have 1/3rd the revenue of it at best (even with DCLK acquisition.