In the tricky waters of the current economy, Google (GOOG) reported an excellent quarter yesterday. But let's get something straight right from the start, because the business media did not with any degree of consistency: The fire-breathing search engine benefited from a good deal from cost-cutting.Prominently mentioning its cost-cutting efforts accomplishes two separate things for you, the savvy investor. First, it cues you in on how well-managed Google is. Though some thought it incapable, it can tuck and trim with the best of them. Mentioning cost-cutting prominently also lets you know that a portion of Google's excellent performance can't be repeated forever. There are, in the end, limits as to how much one can tuck and trim.
For one, Google has hardly been alone. That claim is the product of a journalist with his foot caught in the door of public panic. Coke ( KO), IBM ( IBM), Intel ( INTC) and plenty of other important companies have shown an "ability to weather the economic storm." But part of weathering economic uncertainty -- especially for a company, such as Google, never known to be overly concerned with costs -- is to rein costs in. By not making this clear, articles such as Reuters' failed to inform savvy investors. Time got even more breathless with its headline and lead, and, incredibly, failed to even mention Google's cost controls, which helped its bottom line to such a degree: " Behold! The Recession-Proof Google: Hail Google!." If you can find a single mention of cost cuts, The Business Press Maven will give you a shiny nickel. By contrast, check out the clarity of this article by Yi-Wyn Yen in Fortune. Instead of a simple celebration, in a vague way, of a Google accomplishment, the cost issue fittingly makes the headline: " Google gets frugal and profits soar." And instead of hailing Google in the lead, the article introduces us to this new, disciplined version of the company: "Meet Google 2.0. Gone are the search giant's free-spending ways -- at least for now. The prospect of a severe economic slowdown has forced Google to do something surprising: act fiscally responsible. "The company toned down costly expenses like data centers and new hires and reported profits Thursday of $1.35 billion for the third quarter, up 26% from a year ago. Earnings per share were $4.92, which crushed Street estimates of $4.75 a share.
"Google shares rose nearly 11% in after-hours trading to $390. `This is very encouraging to hear that they're reigning in costs and not acting like the drunken sailors that they once were,' said Jefferies analyst Youssef Squali." Here's to the reformation of drunken sailors! In the tricky waters of today's economy, it could happen. Be careful, though: There are ultimately limits to cutbacks.