Google's Wild Ride Is Over
Kevin Kelleher
02/05/07 - 10:31 AM EST
Bad news, daytraders: The great
Google game is over.
It was a terrific ride for a while: Every three months, Google would
post earnings after weeks of anticipation -- and amid wild guessing by analysts
who received zero guidance from the company.
Of course, Google's plan was to extinguish speculation, but all it did was pour gas on a quarterly bonfire.
Withholding guidance leads to sure-fire volatility, which
speculative investors love, because it can make for big gains when the
numbers are finally delivered. It also imported to Wall Street the kind of fascinating
theater usually found on Broadway.
Adding to the fun was what seemed to be a cunning campaign to
enshroud Google's financials in original and ever-changing accounting.
Google's stock would often move erratically in the wake of its
earnings as if investors were never sure what the heck was going on.
Last October, when the company announced somewhat confusing third-quarter results, the stock rose a
bit,
then fell 2.4% before finally rallying 13% over
the next two days.
But for two of the past three quarters, that post-earnings
hullabaloo has been surprisingly muted. In July, for example, Google's stock rose
only 1% in the two days following its second-quarter earnings
report, leading some investors to theorize that Google was outgrowing
its volatile youth.
And last week, Google delivered a fourth-quarter report that received a
ho-hum reaction.
Although Google once again blew away estimates with profit that tripled from a year ago, the stock actually dropped 4% in the following two days.
Beating the Street by a measly 26 cents? Feh!
The result has been one that was unthinkable only a year ago: Investors
have simply stopped caring as much about Google. The days of obsessing
over Google's every little move are passing, and with it is a large
amount of free publicity that helped keep the Google brand on top.
Take a look at Google's average daily trading volume since it went public:
Until last summer, more than 8 million shares a day were traded
on average. Since then, volume has held below 8 million. In January 2006, when
Google's stock was trading around $450 -- not far below where it now sits -- average volume hit 16.1 million shares a day. This January, it fell to 6.8 million shares a day.
The chart looks a lot the same, if you look at the trading ranges that comprise Google's volatility:
In October 2004, the month that the stock caught fire, Google traded between $129 and $200 -- a $71 range. That was equal to 55% of Google's price at the end of September trading.
By December 2006, the trading range had shrunk to $41, or 8% of the
stock's value at the end of the previous month. And December was no
fluke: Google has simply and steadily grown less and less volatile.
What's behind the slowdown? For one, Google's core search business,
while still healthy (and better than
Yahoo!'s ), is
maturing. Google's top-line growth rate was 73% in 2006 -- impressive yet
down from the previous three year's growth rates of 92%, 118% and 234%,
respectively. Slower growth rates make it easier to pinpoint estimates.
Second, investors have gotten creative about gauging Google's
financials even without guidance from the company. They're turning to customers,
search firms and search-optimizations companies whose livelihoods depend on
understanding Google's business down to a science. Even the niche
community of blogs preoccupied with the company garner increased investor attention.
Third, although no one really wants to come out and say it, Google's
press conferences have gotten boring. That's not meant as criticism: I'm
sure it's exactly what management wants. Not long ago, a slip of the lip
or a moment of clever spontaneity taken out of context became top news,
underscoring the cliché of the moment: genius Google, global-domination
Google, evil Google, etc.
So, the fact that the business press seemed more drawn to
Boeing's earnings report is probably A-OK with Google. And a more stable stock for Google is probably a good thing for investors in the long run, if less
entertaining.
But there's a catch: Investor indifference means there are
fewer people paying attention. And getting people's attention is what
the Internet advertising business is all about. When people stop talking
about your Internet service, it's time to start worrying. Just ask MSN.
