Wall Street is like a burn victim when it comes to Google. If Google so much as flutters the breeze, investors shrink back from the search giant. The latest episode: CFO George Reyes, speaking at a Merrill Lynch conference, said that advertising revenue growth rates at the company are slowing.
Not only did this statement — one that Google makes all the time — send investors fleeing from the room to sell off their GOOG shares, but it also sent the blogosphere into a tizzy trying to decipher what Reyes said and what he really meant and whether he should have said it. Henry Blodget, the formerly disgraced but now seemingly respectable analyst, must have spent the better part of the day tracking down what Reyes said and divining his words for special meaning.
Mathew Ingram, a canny Canadian observer, took Google to task for saying something so inflammatory.
[W]hen your stock is selling for more than 80 times earnings, and you have a market value of over $110-billion (U.S.), don’t use the words “growth is slowing.” Ever. Why? Because then your share price will get creamed, as Google’s did on Tuesday, when chief financial officer George Reyes did exactly that at a Merrill Lynch conference on Internet advertising (which accounts for about 90 per cent of Google’s revenue).
Scott Patterson, writing in the Wall Street Journal’s new Market Beat section, deconstructs whether Reyes properly used the “law of large numbers” analogy. (When asked why growth was slowing, Reyes gave Google’s stock answer — “the law of large numbers” — by which he meant the bigger something gets, percentage gains necessarily slow down. It’s just a mathematical thing.)
All of this intense examination is just utterly ridiculous given that any casual reader of Google’s SEC filings will find some variation of Reyes’ statement plastered all over the documents. As an example, it took me all of 30 seconds to find the following statement in Google’s Q3 05 10-Q:
However, our revenue growth rate has generally declined over time, and we expect it will continue to do so as a result of increasing competition and the difficulty of maintaining growth rates as our revenues increase to higher levels.
I’m not saying that Google is a good investment — obviously it’s a volatile stock. I’m saying that Google is a lightning rod for some kind of weird investor manic-depressive emotions and any little thing, whether valid or not, can set off a sell-off or a rally.
Cynthia Brumfield at 4:21 PM|Comments(0)
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