Monday, February 27, 2006
Analysts Are Seeking Guidance From Google
Google's annual analysts' day on Thursday is shaping up as a test of the company's reluctance to provide financial guidance -- and of investors' tolerance of that tight-lipped approach.
When filing for its initial public offering in April 2004, Google Inc.'s co-founders warned prospective shareholders that they wouldn't give explicit financial guidance or try to smooth out quarterly earnings, departing from fairly standard practices. Citing the philosophy of legendary investor Warren Buffett, they said they were doing this to be free to make the best long-term decisions for the Web-search company.
Some investors groused that Google took this high-minded logic to an extreme at its last analysts' day, in 2005, when Chief Financial Officer George Reyes didn't make a formal presentation -- this, at an event in which even Google's chef got time on the stage to outline the day's menu. But investors were largely tolerant of the lack of financial details.
Analysts predict that things will be different this year. Google last month reported fourth-quarter earnings that fell short of analysts' consensus forecasts, breaking its streak of blowout quarters. In the weeks following the earnings announcement, Google shares were down as much as 27% from their closing high, though they have since crept partway back. Complicated tax considerations were largely to blame for the quarterly shortfall, but some investors say they felt blindsided and blamed Google's no-guidance policy. Some saw additional cause for concern in rising expenses, and underwhelming revenue growth outside the U.S.
Now, Google watchers expect analysts to bring tough questions on Thursday and to pressure executives for answers that might give analysts greater confidence in their forecasts. "It is going to be a highly charged atmosphere," predicts Benjamin Schachter, an Internet analyst at UBS Investment Research.
There's no reason to believe that Google will yield to any such pressures. "There is a cost to not providing guidance and I understand that," Chief Executive Eric Schmidt said in a Jan. 31 interview following the earnings report. "The reason that we don't is our business is so dynamic we'd have to give very broad ranges, and I don't think that would be constructive."
There is one recent sign that the company aims to be more analyst-friendly. Company representatives earlier this month solicited analysts for input on what investors wanted to hear about on Thursday, according to a person familiar with the matter. The big question, though, remains whether the company will be more forthcoming with information when it hosts analysts at the Googleplex this week.
"We look forward to welcoming the analysts to Google again this year, and are working hard to ensure that their visit will be informative and useful," said a Google spokeswoman.
source:http://online.wsj.com/public/article/SB114081739511082858-6fisI2CT8mQcxEXgJV6TD2r_NwE_20070224.html?mod=blogs
