Google's (GOOG) results are out, and it looks like we have a species of miss from the search/advertising kingpin. Keeping in mind that the company doesn't give guidance, per se, net revenues, while up 17% in the quarter, were $3.39-billion, below the $3.45-billion analyst consensus. At the same time, earnings came in at $4.43 a share, a penny below the $4.44 consensus. The stock is off 9% in the afterhours, dropping $40.
The call starts in a couple of minutes, so we'll have more color then, but this is market-rattling stuff. As I have said here a number of times recently, including yesterday, there has been ample indication that advertising inventory saw an air pocket late last year, which would have contributed to keeping revenues below consensus.
Looking back over the scorecard I posted here yesterday, headcount came in in-line. Traffic acquisition costs were up as a percentage, which hurt the bottom line a little more than expected. No color in the press release, however, on advertising conditions in the quarter, or in the current one, which will be the central preoccupation of most investors looking at this release. The main factor in the miss appears to have been weakness in overall revenues, perhaps late in the quarter, which is what most of us have been fretting about.
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So far, the only thing is Google saying that it was entirely unaffected by macroeconomic weakness in the quarter, which seems implausible. Putting a finer point on that, Google execs are hypersensitive about any analyst questions even implying "softness", with three Google speakers just now simultaneously gang-tackling Mary Meeker during the Q&A, all denying, with carefully pre-cooked facts, even a hint of there being softness/weakness/etc. out there. Gosh, I guess they don't read the papers.
Speaking of Ms. Meeker, I should also mention that, as usual, Morgan Stanley's Mary has produced the longest and most meandering question-cum-comment on the call. And it could have just been my half-plugged ears, but it sure sounded like she said something about "Enron" at the beginning of her question.
Overall, it isn't that the long-run Google bullish story is no longer intact -- I remain positive on Google, both straight-up, and as a consolidator -- but investor nervousness about weaker growth in online ads in a crummy economy is entirely understandable. And with Google more or less owning that market, it's going to get knocked about for a while, like it or not.
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While Google generally weaved, bobbed, and successfully skirted the issue on its conference call tonight, the main data point behind Google's weaker than expected results is shown in the following graph:
Granted, the law of large numbers applies to Google as any company, so revenue growth is always going to decline over time. But after not having had revenues decline more than 7-percentage-points year-over-year in any previous quarter, Google turned in a 10-percentage-points decline in growth in the current quarter. While Google management insisted on the call that the company beat its internal growth estimates, that's like your kid getting a C grade versus your B+ expectation, and then attempting to explain it away by saying that he/she had thought they were going to do worse.
