Google earnings call: What was Larry Page thinking?

Thursday's debacle was a huge black eye for Google. The new CEO's lack of leadership raises more doubts about his competence. Includes video.

By MSNMoney partner Apr 15, 2011 12:38PM

By Eric Jackson, Forbes


Google's (GOOG) shares were lower in this morning's premarket than they were even in last night's after-hours when they showed a 5% drop on a 46% rise in operating expenses in the quarter. Despite a 29% increase in net revenues, the rise in expenses clearly spooked Wall Street.

 

Citi's (C) Mark Mahaney is out this morning with a cut target of $650 from $750. His language is coded to complain about Larry Page, Google's new CEO: "With limited management disclosure suggests lack of discipline in a growth/competitive environment that simply isn't as open-ended as it was for GOOG prior to the recession."

 

Translation: "A 38-year old's now in charge, and we're concerned with him running up wacky expenses like driverless cars and a new Google space program."

 

Post continues after video:

As I suggested a couple of weeks ago, Wall Street is now trying to understand what kind of CEO Larry Page will be. There was always a comfort with Eric Schmidt (even though I would say he was a far from perfect CEO).  There was a sense that he kept Google on track and disciplined. Google CFO Patrick Pichette has also quickly won over the trust of the Street. In the first few quarters of Pichette's tenure, he immediately seemed to turn the screws on operational expenses.

 

But Page is still a wild card for the Street. And his performance last night was abysmal and simply fed into the worst fears investors have about what his leadership will mean for Google.

 

When the call opened, Page wasn't introduced as part of the speaking executives (which included Pichette, Nikesh Arora and two newcomers to the call, Jeff Huber the SVP of Engineering and Susan Wojcicki the SVP of Ads). (By the way, when was the last time you heard an SVP of Engineering on an earnings call? That's what you're getting Wall Street under Larry.) Yet as soon as Pichette began speaking, he immediately introduced Larry:

We just happen to have a surprise visit. Larry is joining us for a few minutes at the beginning of the call and wanted to make a few comments. So before we start officially our call, I just want to welcome Larry. Welcome, Larry.

A surprise? Patrick: Come on. Nothing in the prepared remarks of a Google earnings call is a surprise. Although Pichette is a great speaker and presenter and while Huber and Wojcicki were clear in their remarks last night, the two newbies to the call last night read their scripts in a stilted and laconic way even by earnings-call standards.


Then Larry took center stage:


Thank you, Patrick. It's great to take just a few minutes with all of you. We've had a tremendous quarter, 27% year-over-year revenue growth in Q1. And we're really excited about that, and I think it shows the strength of our business and our continuing -- and the continuing growth really in the tech industry. And it's really still at the beginning from a user perspective. There's tremendous improvements to be had in our core products and our core business, and we're really excited about that.
I also wanted to mention a little bit about the management changes. Everything we told you last quarter has happened as we expected. It's all working very well, exactly as we planned. I'll just reiterate that quickly. I'm managing the day-to-day operations of Google as the CEO, working very closely with my team, and I'm really excited about the progress we've had there. I think we really hit the ground running. And Eric, of course, is focused externally, on the government partnerships, government relations and partnership outreaches. And last quarter alone, he was in Germany and Brazil, Argentina and Spain and has been just doing tremendous things for the company. Sergey, as we mentioned, is working very intensively on a few emerging projects for us. As I said, this was all exactly as we planned, and I'm very, very excited about those changes. I'd also mention we've made a number of changes to just simplify our organ, improve our velocity and execution and basically simplify our reporting structures and such.
Now I'm very excited about Google and our momentum and very, very optimistic about our future. I also just wanted to mention we have Jonathan Rosenberg, who's usually done this call, is transitioning out of the company as was announced a while ago. And I really wanted to thank him for all of his insights and hard work and fine communication with all of you. And so we'll clearly miss him, and we really wanted to thank him from the bottom of our hearts. So those are the main things I wanted to say. I'm tremendously excited about all of the things that lay before us as a company. And I also want to say you're in very good hands with the team here, and Patrick who now should take the call away.

But my favorite line of the entire earnings call came next from Pichette:

Great. Thank you, Larry. Thank you for taking a few minutes in the schedule to just drop in.


Yes, Larry's schedule must be packed. Luckily for investors, he was able to squeeze in a few minutes at the very start of the call for us. But then, other matters prevented him from staying on and certainly not able to actually talk off the top of his head in the Q&A session. Oh, and just what were those other matters that Larry's schedule was filled with which prevented him from staying for another 40 minutes? I also loved later during the Q&A when Pichette had to answer what was currently going on in the mind of Page.

Quite simply, it was a complete amateur move on the part of Page. It would have been better (although not much) if Page had not been on the call.  Those comments, the lack of participation in the call, and the large jump in expenses that never really was addressed in the rest of the call by the other executives sends a message to Wall Street: The kids are back in charge at Google, and they'll run it any damn well way they want.


So what if this is a $186 billion company now? Wall Street's worst fears are that Page will run this company based on his only past CEO experience: back when this was a 100-person company. They worry he'll do it by gut instinct and by betting in pet projects that he thinks are going to pay off in the long run. These fears will remain in investors' minds until Page proves them wrong. Last night's performance only fed into those fears.

Jerry Yang of Yahoo (YHOO) was not the best CEO in the history of business, but he never missed an earnings call and he always led those calls. He didn't say much on his first one.  In fact, he explicitly said that he was going to take the first 90 days to study Yahoo before commenting on the strategy. But remember he immediately stepped in after Terry Semel quit.


Larry Page has known he is taking on this role for at least 90 days going back to February (and probably longer). He should be able to communicate his strategic vision for Google now just as Jerry was.


Last night was a huge black eye for Google in investors' eyes. Larry's decision not to participate in the call will only crank up the business media speculation for his first real public speech as CEO.


Larry: If you wanted the CEO job, you've got to be prepared to lead.  Last night was an opportunity for that, which you delegated.

 

At the time of publication, Jackson was long YHOO.


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VIDEO ON MSN MONEY

3Comments
Apr 15, 2011 6:57PM
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Recent years have proven time and again that what is good for the Wall Street may not be good for a long term viability of a company. Each time I hear that a CEO is a "Wall Street darling" I envision illegal machinations and a smoldering pile of rubble where a vibrant business once was 5 or 10 years down the road.

 

So Larry Page cares more about Google than Wall Street. And this is bad how? So he thinks about the viability of the company 20 years from now rather than worrying about the 3% drop in the stock value tomorrow.

 

Anybody with a brain knows that going public is like 2 stages before the death of the company. The last nail to the coffin is usually a company getting a mercenary CEO that was not connected to the growth and development of a given company.

Apr 15, 2011 7:27PM
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You can't inovate and grow without the bothersome matter of expense. Inovation is what got Google where they are today, so I dont believe they should abandon thier philosophy just becauseit might make stockholders nervous.

Apr 15, 2011 5:22PM
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Glad I bailed on goog stock a looooooong time ago.
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