Google Grabbing Global Market Share

Editor's note: This column by Scott Rothbort is a special bonus for TheStreet.com and RealMoney readers. It first appeared on Street Insight on Jan. 30 at 10:20 a.m. EST. To sign up for Street Insight, where you can read Rothbort's commentary in real time, please click here.

That underwheming earnings report that Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) posted earlier this month could be a positive harbinger for Google(GOOG Quote - Cramer on GOOG - Stock Picks).

Let's start off by turning back the clock on Google, which will report fourth-quarter and fiscal-year 2005 results after the close.

After posting a super second quarter last summer, Google's shares took a hit. This was not due to the company's results or its outlook, except for one silly little item.

Management used the term "seasonality" on the conference call to describe its business conditions for the upcoming third quarter. Seasonality is a heinous description for the outlook of a fast-growing company.

What the company meant was not seasonality in the traditional Wall Street sense, but the damage was done. This episode caused the stock to dip over a few weeks before it rebounded to maintain a price level in the low $300s. That was until third-quarter earnings were released.

A Change in Conference Call Strategy

By an act of genius or through sheer luck, Google reported third-quarter 2005 results the evening prior to October options expiration. The company had enjoyed another spectacular quarter, besting Street analysts' consensus by 11% for the second straight quarter. There was no mistaking that the "seasonality" gaffe in the prior quarter was more the product of a management team that was inexperienced in the ways of Wall Street and putting on a good earnings conference call than it was of the true expectations of a slowing growth trend for the business.

This time around, management was well prepared and coached as to how to conduct its earnings call. The business was in solid shape, growth was ever increasing and there was no doubt that Street estimates would have to be taken up.

With the huge short position in at-the-money and just out-of-the-money call options providing rocket fuel to the great quarterly results, Google shares jumped nearly 12% on the day after earnings were released. This set in motion a series of analyst target increases (ignoring the sublime one for Google to hit $2,000), which helped to propel shares on a three-month rally of around 56% to a high of $475.11 on Jan. 11. Since then, the stock has backed off a little and stood at $433.49 as we closed out trading last week. (Google closed at $426.82 Monday, down $6.67, or 1.54%.)

To view Angela Ottomanelli's video preview of Google, click here.

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