It must be tough when you just keep beating estimates quarter after quarter, like Google has done ever since it became a public company — until now. Revenues and profits have continued to rise by the mid-double digits pretty much every time the company reports, and along the way plenty of people have become accustomed to the idea that it will continue more or less forever. And most of those people have been selling in the wake of the company’s much-ballyhooed “miss.”
A couple of things: 1) This is partly Google’s own fault for not providing “guidance” to analysts about how its business is doing, the way most companies do (that is, if Larry and Sergey and Eric even care, since they focus on the long-term and aren’t concerned with quarterly results, as they told us in the prospectus). 2) Describing financial results that came in a penny lower than estimates as a “material miss” is overstating things more than a little, I think — and revenues were only 1.7 per cent lower than estimates, which were likely jacked up anyway.
As my friend Paul Kedrosky pointed out to me, the reaction of Google’s stock — which was down by as much as 9 per cent in after-hours trading — is likely as strong as it is because a) this is the first miss in Google’s history and b) it makes people nervous about how much of an effect the weak U.S. economy and advertising market are going to have on the company in the future. Perhaps some of those who said Google was immune to downturns might be regretting their sanguine comments.
At the same time, however, I think calmer heads should remember that Google’s stock has already dropped by about 20 per cent from its recent high, and that after-hours trading is often the province of nervous Nellies who sell at the first whiff of trouble. It sure doesn’t look to me as though Google’s business is coming apart at the seams.