About That Google Earnings Beat...

Google (GOOG) has just reported Q1 earnings. As usual, they beat estimates handily and the stock is rallying in the after market.

The actual numbers show up on my screen as follows:

Google First-Quarter EPS Ex-Items $5.16; Analyst Est. $4.95

Wow! they really beat the estimates. Great surprise. How come Google always manages to surprise the analysts?

I keep on reading and something catches my eye:

Net Income rose 8.9 percent to $1.42 billion, or $4.49 a share, from $1.31 billion, or $4.12, a year earlier

I have just checked a few headlines from 4/17/2008 (one year ago):

Google-GOOG reports Q1 EPS $4.84 vs. consensus of $4.52

Google beats by $0.32, beats on revs

So what was the report a year ago? $4.12 or $4.84? It coudln't be $4.12 because that would have been $0.30 below consensus. So I checked. They reported $4.12. In fact, according to Bloomberg, Google has not reported above the estimates since 2Q06.

So what gives? I suppose the analysts give their estimates in US GAAP and they cannot be bothered with anticipating the "ex-items" adjustment. I suppose 3 years is not enough time to realize that, given the sizable adjustments, their headline estimate is useless. By the way, Bloomberg lists 39 analysts covering the stock. The guys from Google of course are perfectly happy with their ability to handily beat estimates every quarter.

Google is a great company and they seem to be doing well in a very difficult economy. They are entitled to report whatever they want within the law.

The analysts, however, by now have had enough time to either adjust their estimates to account for the difference or to highlight the discrepancy that took me 5 minutes to explain. If they haven't done so is probably because it is not in their best interest.

Caveat emptor.

Disclosure: I have no position in GOOG.

Comments

[curiouscat:]

Good post. I have long pointed out how often "unusual" losses are "excluded" from "operating earnings." The volume of such "non-reoccurring" losses are so frequent as to make the claim of excluding them as "extrodinary" ludicrous. Occasionally that can be a valid claim but most often it is just earnings manipulation by taking frequent sources of losses and categorizing them as "extraordinary."

Apr 17 08:23 AM

[pondside:]

I think you're mixing up GAAP and non-GAAP estimates and results. Like many companies, Google reports 2 sets of numbers, and analysts often estimate non-GAAP results, which are usually higher than the GAAP results. I haven't checked it out, but I suspect that accounts for the discrepancies you're seeing.

Apr 17 08:25 AM

[Harry Tuttle:]

Sure they account for the difference. My point is that the headline number that is traded on either is not the same number the analysts estimate (which means they trade on a comparison of apples to oranges), or the analysts willingly play a game of underestimating the headline number. This has been going on for several quarters, so it can no longer be a coincidence.


On Apr 17 08:25 AM pondside wrote:

> I think you're mixing up GAAP and non-GAAP estimates and results.
> Like many companies, Google reports 2 sets of numbers, and analysts
> often estimate non-GAAP results, which are usually higher than the
> GAAP results. I haven't checked it out, but I suspect that accounts
> for the discrepancies you're seeing.

Apr 17 08:53 AM

[LA Tech:]

One thing is certain: The days of Google's revenue increases of 80% or 70% or 50% or even 30% are GONE.

Single digit increases year to year is probably the norm going forward.

This stock will never go north of $425 again.

Apr 17 11:04 AM

[coyotebait:]

Thank you.

^__^

..

Apr 18 10:48 AM