Decisions of corporate executives come under scrutiny all the time, sometimes they are considered good decisions, sometimes bad decisions, and sometimes an extreme of one or the other. When we rewind the clock to take a look at two of the Internet giants that have been prominent due to their respective releases of earnings in recent days, distinct decisions of those corporate executives who were in charge of those companies many years ago come into perspective.
For those who do not know, or do not remember, Google (GOOG, GOOGL) (trading report) was once under contract with Yahoo (YHOO) (trading report) to supply Yahoo with search engine technology. This happened well before Google went public, and it is a relationship that Yahoo did everything to maintain. Yahoo even tried to buy Google before Google went public, but Google executives declined the offer.
Therefore, not only did Google, who at the time was almost only a search engine algorithm, refuse to continue to do business with Yahoo, but they also refused a buyout offer that would have made them billionaires. That is a gutsy move for any executive, but given the state of the economy and stock market at the time, we might even consider that much more than gutsy.
Obviously, Google has vision, they had vision back then, and they continue to have vision, and arguably it is that which separated Google from Yahoo back then, and even today. Yahoo made acquisitions back then that seemed logical at the time, but really had no place in their ultimate vertical channel. As the years continued, after their failed attempt at buying Google, investors started to realize that Yahoo did not have a vertical channel or a vision at all. They were putting irons in the fire, and at least initially that seemed like a logical approach, but soon that lack of vision hurt investors and Yahoo.
Conversely, the vision and the risks that were taken by Google from the very beginning helped that company, which was once just part of the Yahoo website, and propelled it to what it is today, a virtual conglomerate of Internet and Technology Services with a backbone in advertising. Google now has their hands in many things, but interestingly this could bring concerns to the table.
Having many irons in the fire is exactly what got Yahoo into trouble, but Yahoo also lacked vision and lacked a vertical channel. With many irons in the fire, and more coming every day, Google does run the risk of being distracted, but it has a solid backbone in advertising, there is clear vision, and although there are concerns, the vertical channel is something we can all write down on a napkin.
Beginning late last year, Google became the tech darling of Wall Street, replacing Apple. Institutional investors almost across the board began piling into Google, and yes, most of them already owned small percentages to begin with. Undoubtedly, these institutions also pressured Google into splitting recently, but these are also the investors that propelled the stock to the levels, which we see today.
The executives at Google are absolutely under pressure to deliver, corporate America has high expectations, but after the earnings miss recently, the tech darling of Wall Street is seriously being questioned. If they can't continue to deliver, the honeymoon may officially be over. Google may be running the risk Yahoo (the darling that once was) experienced, and investors certainly should be aware.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.