Google, Microsoft and Yahoo! Oh My!

Marek Fuchs

You and The Business Press Maven usually yuk it up together over business media coverage that is broadly and fathomlessly wrong, intellectually bankrupt and failed beyond reason. But this morning I wanted to take a happy, lighter turn and just look at how coverage of Google's(GOOG) earnings fell short in a million tiny, little ways.

But first, just as every dog has its day, so, apparently, does every unsourced takeover rumor. The Business Press Maven, using his normally effective "source analysis," has been warning investors away from unsubstantiated Microhoo takeover talk for more than six months. Well, the joke is clearly on me, leading to the ironic, meta turn that The Business Press Maven is the shamed recipient of this week's dreaded Business Press Maven "Back of the Hand" award.

I Just Didn't Get Microsoft's Move on Yahoo!

But, look, in all seriousness -- you will miss the occasional deal if you follow "source analysis," making certain to check that articles written about deals have sources that, though anonymous, do appear to be close to the deal. If they don't appear to be, I say stay clear. Sometimes, though, you'll be wrong or circumstances will change or whatever. And you'll miss. And I missed this one. My apologies to The New York Post, specifically, for criticizing all those seemingly unsourced articles that, in retrospect, were prescient. Posties, please accept this invitation to watch The Business Press Maven eat crow in the public square at high noon.

Now let's focus on other people's shortcomings.

First, one momentous error in the Google coverage. At some low point of its conference call, Google called weak elements to its fourth quarter business "seasonal." And look at how Investor's Business Daily (mis)handles this:

"Google's quarter was hampered by several factors, including dips in ad spending by travel and financial companies, George Reyes, Google's chief financial officer, said in a conference call with analysts. But he called the dips "seasonal." More than that, Google co-founder Sergey Brin said the company is having trouble selling as many ads as expected on partner site MySpace and other social networking sites."

Uh, dude? "More than that?" There is no more than that, because the concept of blaming "seasonal" weakness in a fourth quarter that is being compared to the preceding fourth quarter is -- how shall I put this delicately? -- unrelentingly nuts. Holy gullibility, Batman!

If we can recover from getting kicked in the head by that, let's move on to some more modest criticisms.

Look, Google disappointed ever so slightly. In a market like this, though, psychology is such that any slight miss from a highflier will be treated with an overweighted degree of panic. So why not set the stage, make that clear? If you don't, the trader reaction makes it seem to the uninitiated investor like Google fell short by a mile. Look at our own TheStreet.com. Google reported right after the close. Then, after-market traders, poised by market circumstance to turn especially dark at any soupcon of a miss, took the stock down and the headline ran within the hour:

"Traders Gag on Google"

The lead was equally dire: "Google's fourth-quarter profit grew as revenue climbed 51%, but the company's results were below Wall Street estimates. Shares of Google slipped more than 7% in recent after-hours trading to $523.85."

Now all this is accurate. But why not put it in the larger perspective of current market sentiment, which is dark and stormy enough to make traders gag from disappointment on order of a penny. Especially with a stock full of expectations like Google? In one added sentence, it puts the disappointment -- and the reaction to that disappointment -- in fuller perspective.

Savvy investor, if you don't see it there in what you read, insert it. As an aside, of course, also remember the corollary. If market sentiment is forgiving, reaction to an ever so slight beat of expectations might be giddy. In that case, you want to be reminded (or remind yourself) that initial trader reaction is influenced by the larger market mood and should not be seen as any long-term statement that the miniscule miss/beat has lasting meaning. Remember, stock results don't change. Reactions to those same results in different circumstances do.

How about the treatment of lack of recession talk?

Google made some bumptious claims about not seeing any evidence of recession. With its international exposure, which makes it less beholden to the United States economy, and slight miss, much having to do with the social networking sights, I'm willing to swallow the fact that Google hasn't seen much impact of the downturn. I'm not, though, totally willing -- as much of the coverage did -- to swallow Google's myopic statements about not seeing any impact, even looking forward. But MarketWatch is:

"When an analyst mentioned a likely 'economic slowdown' expected in the coming year, Schmidt quickly interjected that, 'that's your view, not necessarily ours. We have not yet seen any negative impact from the rumors of future recessions,' Schmidt said."

MarketWatch then goes off talking about hiring pace without immediately making the point that there was weakness in financial advertising, which seems the function of larger forces Google claims to be completely immune from.

Worse, Google separately laid down the common claim that it can actually benefit from a recession, as its form of advertising can save money. Any time this is mentioned, the savvy investor should realize (because the business media rarely says it) that few businesses are recession-proof and though many claim that they stand to benefit from a recession, even fewer do. And if there is any manner of advertising business that has ever benefited from a recession, well, please email me its name because it's a mystery to me. Advertising budgets are often the easiest to cut.

Moreover, Google's past practice of not giving guidance going forward sowed a minimum of confusion and ill will when everything was going perfectly. In a possible slowdown, however, this can emerge as a central issue. The company appears to be feeling slight effects of the slowdown. If the effects get more serious and Google still claims immunity and still fails to give guidance, where will that leave investors? And how well will the business media handle it? Not a big deal yet. But, beware and be aware.

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