Leaving Googlemania and returning to reality

Google announced that it earned $372 million in Q4 2005 or $1.22 [Earnings call transcript available here at SeekingAlpha.com]. This was far below what analysts expected; according to the Wall Street Journal (subscription required), some had put the whisper number for the stock up at nearly $2.00. Google stock tumbled about $70 in after-hours trading or about 16 percent at 5:30 pm. I'm sure there are a lot of mutual fund managers saying, "Yikes! How could they miss by so much?"


Lest any Google owners be considering descending from their office towers without benefit of an elevator, perhaps this little excerpt from the company's S-1 filed in April 2004 might help:

As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same. In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes this pressure has caused companies to manipulate financial results in order to “make their quarter.” In Warren Buffett’s words, “We won’t ‘smooth’ quarterly or annual results: If earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you.”

Sounds like they did what they said, and they even quoted Warren Buffet to back them up.


And even though the market will probably punish the stock tomorrow as well, Google still does nearly half of the searches done on the Internet, and that's roughly double that of its nearest competitor. Further, Google has controls a huge share of the advertising on more than eight million blogs on the internet because Google make it easy for marketers to place and measure advertising. Plus, Google was the most influential brand globally in 2005, beating out branding giant Apple. I doubt any of those numbers will change next quarter, regardless of what the earnings were or what the stock does tomorrow. Why? Because those are the long-term metrics that management is worrying about, and they are also the ones that will determine Google's value long-term.


So I guess if we don't like their earnings, we can just lump them.

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