Google's Grating Silence

There's nothing wrong with Google challenging what many startups regard as the tyranny of investment banks in the underwriting process. The shareholder "Owner's Manual" that Google inserted at the start of its prospectus was the stuff of legend -- an inspiring blow for tech companies that, although profitable, find the yoke of quarterly earnings and operating margins hurt their ability to invest in innovation and plan for long-term growth. It was the first Securities and Exchange Commission filing to include the words "Don't Be Evil" -- Google's rallying cry. "We will not shy away from high-risk, high-reward projects because of short-term earnings pressure," the S-1 read, causing a thousand entrepreneurs' hearts to skip a beat.

But in playing Blutarsky to Wall Street's Dean Wormer, Google has gone too far. Many of the investors the company looks down on are also loyal users of the search engine. They are the same investors Google stood up for when it insisted on a Dutch auction IPO. Do they suddenly become evil once they log on to their Ameritrade accounts? Should they be denied the degree of fundamental information they are used to receiving from the other companies in which they invest?

Google refuses to offer any guidance on its earnings numbers, although it's easy to understand why: Guiding investors to profit estimates is like the board game Go -- the rules sound simple enough but turn out to be devilishly complex. Google's response, though, is to address the right problem with the wrong solution. Withholding guidance makes a stock more volatile ahead of an earnings report.

"It's not that people need to be spoon-fed guidance, but getting those numbers allows for fuller expectations of the company," says Mark Mahaney, an analyst at American Technology Research, which does no underwriting for companies. "If you don't have visibility, it generally makes you a little more cautious about the stock."

To see how loath Google is to share information, consider a story that appeared recently in GQ. Written by longtime Silicon Valley journalist John Heilemann, the piece began with an amusing anecdote about Page sitting in a plate of creme fraiche before offering new evidence that Google doesn't quite get what it means to be a public company.