Google Stock Gains Volatility
Stock in Google slipped 3 percent on Wednesday after the Internet company said it accidentally posted financial forecasts on its Web site. Google says the forecasts were not supposed to be released and that, in some cases, they are no longer accurate.
Google deliberately avoids offering the kind of quarterly sales forecasts that many companies provide. As a result, investors tend to seize on whatever information the company does make public, even accidentally. In recent weeks, that's meant a wild ride for Google stock. Shares that topped $475 less than two months ago are worth 25 percent less today.
Google managers insist they're not distracted by such short-term fluctuations.
"There's this belief that somehow the management team controls the stock price directly. And that's probably illegal. And it's certainly a bad way of running a company," CEO Eric Schmidt told an analysts' conference last week. "Stock price evolves as a lagging indicator of the greatness of a business and its success. And any attempt to manipulate it, other than as a lagging indicator, to me is suspect."
Google stressed its long-term orientation two years ago when it first sold stock to the public. A "founders memo" drafted by co-founder Larry Page said Google would not provide traditional quarterly financial forecasts. Page said focusing on such short-term targets would be as pointless as a dieter stepping on a scale every half hour.
In the absence of quarterly guidance about sales and profits, though, investors have been left to guess about Google's weight. That can cause big swings in the company's stock price, whenever the chief financial officer warns of slowing growth, for example, or when outdated information is accidentally posted on the Google website.
"The no-guidance policy generally tends to make things more volatile, not less volatile for the stock. So as an analyst, we usually recommend against that," said Senior Analyst Safa Rashtchy of Piper Jaffray.
Rashtchy remains bullish about Google's long-term prospects. Despite the recent slide, he expects the share price to hit $600 by year's end.
"We think that Google still has a lot of strength. Look, the past 10 years or so was Microsoft's era. We think the next 10 years is Google's era," Rashtchy said.
Others are more cautious. Equity analyst Scott Kessler of Standard and Poor's worries that even as it branches into new businesses, Google remains overly dependent on Internet advertising to make money. He expects more companies to challenge Google in the near future.
"We think the competitive landscape, while it's not necessarily changing substantially today, it is evolving, and it could tilt away from Google's favor at some point in the next, say, year or two," Kessler said.
Kessler was among those who peppered Google managers with questions at an analysts' conference last week. But he disagrees with some Wall Street types who insist it's time for the company to drop its policy against quarter-by-quarter forecasts. He thinks the company could avoid those forecasts and still satisfy investors' curiosity, if Google simply shared other measures of its performance in a regular, predictable way.
"I think that you can, as a company, be very, very focused on the long term, while also providing helpful and detailed information to the investment community on a recurring basis. And I think that is ultimately what one of the company's goals has to be for 2006," Kessler said.
Kessler thinks it will take time for Google to improve its reputation for sharing financial data. But it shouldn't be impossible, especially for a company whose mission is to organize the world's information and make it universally accessible and useful.
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