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January 31st, 2006, 09:09 PM #1Google misses Street targets, shares tumble
get out while you can.
SAN FRANCISCO (Reuters) - Shares of Google Inc. (NasdaqNM:GOOG - News) fell as much as 19 percent on Tuesday after the Web search company missed Wall Street profit targets for the first time in its short but spectacular history, as disappointing British results led to higher-than-expected taxes. http://us.bc.yahoo.com/b?P=9YBFJthtf...%2fB%3d3220596 The slide, which at one stage wiped out more than $20 billion of Google's market value, illustrated the big risks investors have taken by buying the shares after a meteoric rise since their initial public offering in August 2004.
Earnings, excluding one-time items, were $1.54 per share, below the consensus expectation of $1.77, according to Reuters Estimates.
That ended the uninterrupted winning streak Google has had since its August 2004 public offering, a run in which it topped Wall Street quarterly profit expectations by at least 10 percent.
The big miss is bound to raise questions about what Google executives knew and when, and whether they failed to release important information to the market in a timely fashion.
Google shares fell 12 percent in after-hours trade to $379.00, slicing roughly $15.3 billion from a market capitalization that had stood around $126 billion. To put that in perspective, the decline represents the entire market value of Gannett Co. Inc. (NYSE:GCI - News), the largest U.S. newspaper chain.
Google had become a Wall Street darling as well as a household word as its Internet services have become synonymous with Web search. Bullish analysts have predicted the stock price could race to levels last seen during the dot-com era, with one recently predicting the shares could rise to $600.
"It would be fair to say that the bloom is off the rose," said Stifel Nicolaus analyst Scott Devitt, who issued a rare "sell" recommendation on Google stock this month. "Google remains a great company. But there is a disconnect between the business and the market capitalization."
Japanese, South Korean and Chinese Internet stocks listed in the United States fell 2 percent to 3 percent following Google's report.
BRITISH TAKE A HOLIDAY
Chief Financial Officer George Reyes said advertising spending during the month of December had been weak in some sectors of its British business -- its second-largest market --- due to a fall-off in usage during the year-end holidays.
Because it pays far lower taxes in Europe through its Irish subsidiary than it does on revenue from its home market, Google paid higher taxes overall, Reyes said.
The effective quarterly tax rate was 41.8 percent, taking the annual rate to 31.6 percent, well above the roughly 30 percent rate it had predicted for 2005.
"I think it is a tax rate story," Reyes told Reuters in a phone interview after the report. "We ended up having more of our earnings taxed at the higher U.S. rate," he said.
The stronger U.S. dollar also cut the value of foreign revenue, which would have been 2.1 percent higher in the fourth quarter if exchange rates had remained in line with 2004.
Net income for the fourth quarter rose to $372.2 million, or $1.22 per diluted share, from the year-earlier quarter's $204.1 million, or 71 cents a share.
Gross revenue grew 86 percent to $1.92 billion as advertising revenues soared, meeting analysts' targets.
At the tax rate initially forecast by Google, adjusted earnings would have been $1.81 per share, versus the consensus of $1.77, according to Reuters Estimates.
On a conference call to discuss results, Chief Executive Eric Schmidt said Google plans to significantly increase its capital spending this year, with most of it focused on servers, networking equipment and data centers, as well as real estate.
"We are going to invest for the long term and make some really big bets," Schmidt said on the call.
BUSINESS AS USUAL IS NOT ENOUGH
Virtually all Google's revenue comes from sales of Web search-related advertising. Revenue, excluding traffic acquisition costs of $629 million, was $1.29 billion, nearly double the $642 million in revenue net of such costs it reported in the year-earlier fourth quarter.
Traffic acquisition costs refer to revenue that Google passes along to hundreds of affiliates, most importantly Time Warner Inc.'s (NYSE:TWX - News) America Online, which rely on Google's search system to serve up advertisements on their own sites.
Google-owned sites generated $1.10 billion, or 57 percent of revenue. Google network revenue -- sales through its AdWords network of affiliated sites -- was $799 million.
Revenue roughly matched consensus analysts' expectations. In its prior five quarters as a public company, Google has beaten the revenue consensus by around 5 percent to 8 percent.
"The issue was Google came in line, as opposed to having a blow-out quarter," analyst Martin Pyykkonen of Hoefer & Arnett in Denver said. "As far as anything deteriorating or market share loss or Yahoo being stronger and Google not being as strong, none of that seems to be the issue here," he said.
One-time items include a $90 million donation to the Google Foundation and $58 million in stock compensation charges, the company said.
(Additional reporting by Duncan Martell in San Francisco, Daisuke Wakabayashi in Seattle, Herb Lash, Caroline Valetkevitch, Kenneth Li and Yinka Adegoke in New York)
January 31st, 2006, 09:15 PM #2
January 31st, 2006, 09:21 PM #3
Google is still making boatloads of money --just not as much as the wall-street crowd hoped.
I think this is a tiny bump in the road for them, but of course there will be major potholes in the future. So being smart, they are trying to diversify.
January 31st, 2006, 10:04 PM #4
Wall-Street dose not understand the net.
Buy! Buy! Buy! Stay in for the long term. That is where the real money is in the market anyway. Think about where G will be in 5 to 10 years.Just a squirrel trying to get a nut, in the Internet jungle.
February 1st, 2006, 03:16 AM #5Think about where G will be in 5 to 10 years.
February 1st, 2006, 03:32 AM #6
- Join Date
- January 18th, 2005
- Nunya, Business
Just a bump in the road.
"Think about where G will be in 5 to 10 years."
Bigger than Microsoft
February 1st, 2006, 03:36 AM #7
February 1st, 2006, 04:31 AM #8
The telephone companies in both Canada and the USA are currently trying to charge both Google and EBay fees for access to their systems. If that happens I believe the shares will drop even lower. I think Yahoo shares trade at the $40.00 range.
February 1st, 2006, 04:46 AM #9
Yahoo is at $34.38 and had 52 week high of around 44-45
From what I have read, before the gov and China issues, Google is supposed to hit around $600 before it breaks down. Look at the rebound already... 375 back to 432 in 1 day...
Mid 400 for the next few months, then 600 around summer then think about unloading, but this is for sure a long term stock.
NOTE* This is pure speculation on my part based on what I have read and pieced together over time and gut feeling
February 1st, 2006, 04:49 AM #10
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