Google Revenue Jumps, But Misses Forecasts

http://www.nytimes.com/2014/04/17/technology/google-revenue-jumps-but-misses-forecasts.html?_r=0

by mindcrime • 12 years ago

68 55 12 years ago

whoismua7• 12 years ago

Google is overpriced IMO, their PE has been at around 30 for quite a while. At their size it's extremely hard, if not impossible to keep growth at level to justify the high PE. Google's PE should be around 15-20, max. Personally, I'd rather own MSFT, better diversified and offers a dividend.

Their SE is unbearable without ad blockers already.

encoderer2• 12 years ago

There's a metric for this, the PEG ratio. It's P/E divided by real growth rates.

Googles PEG is about 1.5. "1" is considered ideal, less than one is a "deal", over 1 is not.

But 1.5 isn't bad. Amazon, for example, is around 4, even now after the correction.

marvin• 12 years ago

It doesn't really make sense to compare this number with other companies in the same sector. Long-term, the stock price needs to reflect the actual income and growth of the company. Otherwise we are in "greater fool" territory. There is good reason to be skeptical of Amazon's valuation, and that of many other tech companies.

(Not that for the record, I am almost exclusively a growth investor in the speculative part of my portfolio).

Google still has room to grow, though. I am actually more worried about Facebook's risk/reward profile.

whoismua7• 12 years ago

But I think their growth is artificial and not sustainable. It's obvious that their growth has been achieved by adding more ads to the pages even as their CPC is crashing. .

applecore• 12 years ago

Google has huge cash reserves ($60 billion), so you really should look at P/E adjusted for cash and cash equivalents on their balance sheet. Ex-cash, it's about 19.

johansch• 12 years ago

Ah, this is why we've seen so many google-related tech successes being publicized today...

nraynaud4• 12 years ago

how do they plan that? they would want the technology news to come before the result news to soften the landing? or they would do it after to try to cheer up the stock?

001sky• 12 years ago

the term of art is 'headfake'...

https://en.wikipedia.org/wiki/Head_fake

dannyr• 12 years ago

Yup, everything is a conspiracy.

They have a bunch of these projects and app releases on hold for a long time and announce them before they release their earnings.

Ah, HN.

#sarcasm

rebel• 12 years ago

There are billions of dollars at stake. They know what the estimates are the whole time, and they have a pretty good idea for weeks/months on whether or not they are going to hit them. They would be borderline insane to not have PR plans in place. It would be naive to think otherwise.

IBM• 12 years ago

I'm glad I'm not the only person that notices this. There's a reason why these puff pieces came out when they did:

http://www.theverge.com/2014/4/15/5615880/building-blocks-ho...

http://www.fastcompany.com/3028156/united-states-of-innovati...

It's about managing investor sentiment. Core profitability of their ad business (as indicated by CPC) has been declining for I think 9 or 10 quarters in a row now? They're aggressively monetizing all their services and products because of this to keep driving aggregate clicks up. "We'll make it up in volume"

They need shiny baubles to dangle in front of investors in the absence of creating real new markets and businesses that generate cash flow. It's not just for investors either. They're attempting to be perceived to be an innovative company in the eyes of their various stakeholders (employees, potential employees, tech press, the general public, regulators, etc.) even though they're pretty much the new Microsoft in terms of milking their one hit (advertising).

Funny enough, Google's core business is being disrupted by the mobile revolution ushered in by Apple (you won't read that particular narrative in the tech/financial press because Google X and other high-profile "moon shots" have been effective in accomplishing the PR objective). Android was a completely defensive move about making sure the erosion to that business was limited and that they'd have a slice of the advertising pie even if it's fundamentally less rewarding than desktop advertising. If Google had attempted to sell Android it would have never been as successful, so there was no choice, it was purely about staunching the bleeding.

This is why Google has been so acquisitive for so many years; they're desperately searching for new businesses that make money (and also clearing the market of anything that could threaten their existing one). The tech media interprets this as being "bold" and "innovative" (which really doesn't make any sense when you think about it) but it's really out of fear and desperation. Companies that have defensible moats around their business don't need to overpay or rush into deals. The media cheerleads it because it gives them something to write about and the resulting boom in Silicon Valley has flowed to them as well. VCs cheerlead it because they rely on these insecure companies to provide ample exits for their portfolio companies at lofty valuations (https://twitter.com/cdixon/status/427602474086584320). Follow Marc Andreessen on Twitter to see him try to justify valuations in technology and dispel any comparisons to the Dot Com boom. Facebook does this as well, but fortunately for them they have a stock that is insanely overvalued which allows Mark Zuckerberg to use it as currency. Google's valuation isn't as generous, but more importantly these acquisitions have been diluting Larry and Sergei's controlling interest (something they recently rectified with a new class of shares). So I'm sure they'll be matching Facebook's pace in no time.

sjg007• 12 years ago

It is perfectly reasonable to seek out other revenue streams. It is still a land grab. There are many other megatech companies that aren't innovating or acquiring and are slowly dying. The "tech platform" evolves every 10-20 years. Innovate or die. We already talk about the Internet of things. Mobile apps and mobile access are clearly eclipsing the PC. Odds are the next Facebook or Google starts as some mobile app not yet invented.

nraynaud4• 12 years ago

I love the title. As far as I know, it's the forecast that missed the reality. When the weather is not as planned, it's the weather service that missed, not the sky. It was not an engagement form google.

It's incredible how twisted some vocabulary has become. What do they say when they forecast on agricultural prices and the actual weather influenced the production? corn production missed the forecast?

marbletiles• 12 years ago

Er, yes? "Corn yields fell short of forecasts" is a common phrasing. "Temperatures failed to reach record highs set in 19xx despite the longest heatwave since records began" is another type of thing you'll see.

nraynaud4• 12 years ago

that's just wonderful. I'm still debating between Wes Anderson/Bill Murray or Tim Burton/Johnny Depp to shoot a movie where those sentences would be uttered.

Maybe I'm just not made for this world.

gfodor2• 12 years ago

The reason it is phrased this way is because when a company misses forecast this usually results in the selloff of stock. This is generally the primary focus of earnings report reporting: the direction of the stock price.

higherpurpose• 12 years ago

I think that is also one of the reasons why public corporations are so heavily influenced by Wall Street in their decisions, and why they strive to reach certain quarterly goals in order to "meet the forecasts". If it was reported more like "forecasts miss the revenue", I think companies would be under less pressure from Wall Street to perform "at least as well as the expectations" every quarter.

harryh• 12 years ago

"Uncooperative weather has farmers off to slow start getting nation's corn crop in the ground"

http://www.greenfieldreporter.com/view/story/f6b2f534d9ba40e...

nraynaud4• 12 years ago

Hunter S. Thompson at a low point of his life had to be headline editor for a business newspaper, I guess.

(the first paragraph is quite good, too)

aegiso• 12 years ago

Just classic marketing psychology, of the "stopped beating your wife yet?" variety. By pondering why Google missed the forecast you automagically dump the blame on Google instead of the shitty forecast.

Vocab is hardly more twisted now, though; journalism has always chosen its words deliberately.

pinaceae• 12 years ago

revenue alone does not mean squat.

the problem is that while their revenue grew, their costs grew faster than their profit. can mean a lot of things of course, but most simple explanation is that it is becoming more and more expensive to grow, hurting bottom line.

see here for a chart: pic.twitter.com/yoHjCjq30B

not exactly what investors want to see.

Zhenya• 12 years ago

I'm going to use this at work - operations missed analytics results. That way I never have to correct my work...

mbesto2• 12 years ago

As far as I know, it's the forecast that missed the reality.

I believe what you are inferring is a called "prediction", not a forecast.

It's incredible how twisted some vocabulary has become.

Context is everything. Let me try to simplify the financial terminology:

A company forecasts it's key statistics based on the internal finance team (for revenues, they'll work with sales to validate this for example). The market dictates the price of the stock based on the growth potential of the company. Stock price is a reflection of a firms ability to both grow (revenues) and control growth (forecasting). In other words, as an investor, I'm more likely to buy stock that is both predictable (rather, that it's forecastable) and has growth. In this specific case the forecast was incorrect, and thus they are being penalized for it.

This is also why P/E ratios are so high for tech companies because their growth potential is generally seen as much high than non-tech. In other words they scale much faster than non tech.

nandemo• 12 years ago

Incorrect. It's not company (in this case, Google) that forecasts its own earnings/share. It's equity analysts from investment banks and the like.

dkokelley• 12 years ago

The forecast is not made in a vacuum. In fact, Google's management has a lot of input into the process through guidance. I understand that there is no explicit agreement from Google to hit the forecasted numbers, but from another perspective, the shareholders have put out goals, and Google missed them.

It's analogous to a salesman failing to meet his or her sales goals. You don't (typically) say that the sales manager missed the sales estimate. On the other hand, if the sales manager (or in this case the analyst and shareholders) DOES give Google an unreasonable goal, you have the option to bet against the poor analysis.

nostrademons3• 12 years ago

Google's letter to shareholders when they went public said that they would never give earnings guidance. Has that policy changed?

Edit: Various articles have suggested not:

http://www.marketwatch.com/story/google-investors-pay-the-pr...

http://www.mckinsey.com/insights/corporate_finance/the_misgu...

ekianjo2• 12 years ago

it's the forecast that missed the reality

Forecast is created by company employees, based on what they know and the company plans. It's not just sticking your thumb in the air and guessing what tomorrow will be. So yeah, that's called "missing the forecast", and it may be because your forecast was not accurate (too optimistic), or the company did not perform as well as expected (stuff happened that made it hard to meet objectives).

MikeCapone• 12 years ago

Forecast is created by company employees, based on what they know and the company plans.

Forecasts are created by financial analysts working for big banks and brokerage firms, not Google employees.

saalweachter• 12 years ago

Yeah, but at the end of the day it doesn't matter.

Stocks are priced based on the expectations of the company's future value. If the expectations were wrong, the price is wrong, and needs to be readjusted. It's not a matter of blame.

ChuckMcM5• 12 years ago

Interesting results. I've remarked in the past how the decreasing CPC numbers were being papered over by creating massive amounts of inventory (more ads per page to click on) and paid click growth has largely been facilitated by adding distribution "partners" which is code in the search business that shove traffic your way. Early on in Google's history it was all organic but this last quarter they were spending nearly a billion dollars a quarter to have people send them traffic. Looking at the numbers for the last 12 quarters its like this:

          Paid Click deltas (%)     Traffic Spend 
             Y/Y Q   Prev Q        ($m)     y/y    q/q 
   Q1FY2010    15      5           265      --      --
   Q2FY2010    15      (3)         269      --      1.5
   Q3FY2010    16      4           285      --      6
   Q4FY2010    18      11          333      --      17

   Q1FY2011    18      4           337      27      1
   Q2FY2011    18      2           355      32      5
   Q3FY2011    28      13          383      34      8
   Q4FY2011    34      17          442      33      15

   Q1FY2012    39      7           468      39      6
   Q2FY2012    42      1           507      43      8
   Q3FY2012    33      6           556      45      10
   Q4FY2012    24      9           634      43      14

   Q1FY2013    20      3           680      45      7
   Q2FY2013    23      4           706      39      4
   Q3FY2013    26      8           755      36      7
   Q4FY2013    31      13          824      30      9

   Q1FY2014    26      (1)         845      24      3

Who would have thought between Microsoft and Google that sending search traffic artificially to a search engine would be a > $4B/year business? I don't think it is sustainable long term.

whoismua7• 12 years ago

Why isn't Google suffering a backlash and lost share due to this http://digitalgrowth.com.au/wp-content/uploads/2013/07/googl... ? I cannot use them without ad blockers, I suppose I'm not the only one ;)

dave809• 12 years ago

Because the ads are usually relevant and useful. in your example, the second card is a nice summary of hotels with all the relevant info right there

raldi• 12 years ago

What links should show up when a user does that search, and why do you feel they would better serve the user than what's in the screenshot?

branciforte• 12 years ago

What did you expect? The VAST majority of people who type "london hotels" are looking to BUY a hotel room in London for the night.

Try a search like "Albert Einstein". No ads.

Are you doing research on hotels in London? Then you'll need to add some more keywords. Google Search is not setup specifically for London hotel researchers.

guyzero2• 12 years ago

It is possible to think about this the opposite way.

Google is showing more ads than it used to. There are more search queries than ever and more partner sites and partner ad impressions.

There's a marginal return on these extra impressions, they generate relatively fewer clicks. So you end up diluting the metrics.

It's not just more ads per page (although it is that in some cases) it's more page views too.

tl;dr: it's dilution due to marginal gains with the added traffic

ChuckMcM5• 12 years ago

That is exactly how I look at it. If they showed no more ads, and got no more searches than the previous quarter, the drop in CPC would be a drop in revenue. But since the increase both ads shown, and buy more traffic, their overall revenue goes up. The question then is when can they not show any more ads (the page is totally ads) and when can they buy no more traffic (everything additional they try to buy is the really crappy robot stuff that comes from some randome armpit of the Interwebs). Then the equation flips, their CPC drops, their searches increase (and costs increase), and they get no more paid clicks than they did the previous quarter. At that point adding money just causes them to reduce profits and they have to start riding the CPC loss down. Given the increase in paid distribution this quarter over last quarter and a loss of 1% in paid clicks, I'm interested to see what next quarter looks like.

If they follow their trends they should pay about 917 to 988M$ for distribution traffic. They will need to get at least a 25% increase in paid clicks over Q2 of last year which would be something like an increase in 5 - 6% in paid clicks over this just finished quarter. If they can't do that then they are going to miss their targets again next quarter. My guess (well what I would do if I were in their shoes) is that they would take it out of the members cut, basically reduce the payout to AdSense for Content and other member sites. Either way, interesting times ahead.

foobarqux• 12 years ago

What do you think of Yahoo's traffic acquisition and the fact that they like to state their financial figures excluding them?

ChuckMcM5• 12 years ago

Yahoo (aka Bing since all their search traffic is handled by Bing at the moment) also spends heavily on acquisition. We (Blekko) did too for a while (although we could never afford to pay hundreds of millions of dollars doing so), there are a lot of people who will sell you traffic. The interesting take away is that search it not nearly so differentiated as it once was. That is hurting CPC (16th straight quarter of declines for Google) and it is hurting loyalty. Lots of people on HN for example use DDG as their search page. That is a huge change in the search business and a source of worry for Google (as the leader) and a source of hope for people breaking into the market. As search becomes commoditized, Ad CPC becomes a race to the bottom. That doesn't bode well for a company depending on Search Advertising to fund multi-billion dollar investments, per quarter, in data centers and other infrastructure.

Its kind of like watching the Pacific ocean erode the cliffs along Malibu, slowly but surely really pricey real estate is turning into tide pools.

yukichan• 12 years ago

Who would have thought between Microsoft and Google that sending search traffic artificially to a search engine would be a > $4B/year business?

Many toolbars make all their money that way. Ask Partner Network, Conduit. Mozilla makes their money this way, in fact I bet a huge chunk of that cost you see there is the Mozilla deal worth hundreds of millions of dollars.

ChuckMcM5• 12 years ago

I am really curious if they consider the money they pay to support the Mozilla foundation as "paid distribution." I could see how it would come out like that, but I could also argue from an accounting standpoint that it should be part of the 2.39B$ they paid to "Network Members". It might be a good question for their next earnings call though.

zmmmmm• 12 years ago

I always fear what will happen to all of Google's well-intentioned businesses and ethical thresholds when / if the river of money starts to narrow. Will they try to bring back their revenue with ever more desperate measures? Will they slash and burn their investments? Or will they stick by their guns and keep plowing money into new projects, continue walking the thin line between "creepy" and "useful" without ever erring across it, even while their kingdom crumbles?

We've never had to ask this question because on the back of an expanding internet Google has risen with the tide regardless of their own performance (and I'm not saying their performance has ever been poor, just that we have no way to know in absolute terms). This particular instance may be nothing, but every time they miss a mark I wonder whether we'll finally find out where their principles truly lie.

Google Revenue Jumps, But Misses Forecasts

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