Google Economics: Bad Quarter Hid Good News
The usual and customary reaction to missing earnings predictions got under way after Google’s reported 11 cents less than what analysts expected. Google explained why they should relax.
The stock market reacts almost predictably to news of a company failing to meet the predictions of stock analysts. Come in under as much as a penny, and investors turn on the stock like it made a gassy sound in a crowded elevator.
Such is true with Google, which reported earnings of $4.63 per share for Q2 2008. Not bad, except traders expected $4.74. Punishment was meted out swiftly in after hours trading. At 7:32 am ET, Google’s shares had fallen from a previous close of $533.44 all the way down to $496, a drop of seven percent.
They likely didn’t listen, or choose to listen, to Google’s chief economic spinmeister, Hal Varian, on the conference call. As Techland noted, Varian indicated a couple of reasons why the Googleplex isn’t going to be auctioned off anytime soon.
It seems that in the process of building an excellent search engine and an absolute money printing advertising business, Google became a bulwark against adverse economic forces. “As times get a little uncertain, price sensitive consumers spend more time searching for deals. We have a bit of the Wal-Mart effect,” Varian said.
Meaning, in Varian’s thinking, Google possesses a little recession resistance in ways that competing companies do not. He also noted that outside of real estate, all of the sectors of paid search experienced revenue growth in the quarter.
Varian argues this is due to the accountability of paid search, and we readily agree that helps. But Google’s dominant position in online advertising, much like the Wal-Mart Varian name-checked in retail, is the real reason why the money keeps on coming.