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Some investors were miffed April 14 after Google's new chief executive, co-founder Larry Page, joined the earnings conference call for barely three minutes, leaving the company's chief financial officer to defend Google's growing costs to an irritated Wall Street contingent.
"At least he showed up for 3 minutes of the call, but we would have wanted Larry to stick around for Q&A," wrote Citigroup analyst Mark Mahaney in a note to clients, as he downgraded the stock to "hold" from "buy."
Mahaney said Google has now become a "show-me story."
Others were similarly perplexed. "Our opinion was the 370-word introduction delivered by the CEO that did not include any comments on how he wanted to shape the company was lackluster," BGC Partners analyst Colin Gillis said in a note called "Dead Money Until Summer."
Gillis said that while Page is focused on the long term, "it is also reasonable to suggest that the current management team is not focused on reversing the near-term pressures on the share price."
Google (GOOG, news) shares have shed 16% of their value since Page was named CEO in January.
'Not a conventional company'
Investors might want to go back and re-read the letter Page and co-founder Sergey Brin released ahead of the company's "Dutch auction" initial public offering, titled: "An Owner's Manual" for Google's Shareholders, inspired by investing legend Warren Buffett and the manifesto he wrote to Berkshire Hathaway (BRK.B, news) shareholders.
Since its founding, and especially since its IPO, Google has set itself apart. "Google is not a conventional company. We don't intend to become one," Page wrote in 2004. From the get-go, the company fashioned itself as the "anti-Wall Street," and most investors focused on the founders' statement that Google would refuse to give earnings guidance.
"We will not shy away from high-risk, high-reward projects because of short term earnings pressure," Page wrote in 2004. "Some of our past bets have gone extraordinarily well, and others have not. Because we recognize the pursuit of such projects as the key to our long term success, we will continue to seek them out."
But Wall Street's increasing concern is that the company's "other projects" are never going to pan out and that Google will remain a one-trick pony.
Investors are worried that the jump in operating expenses is indicative of a lack of discipline. In the first quarter, Google's operating expenses jumped 54%, to $2.84 billion, from the same period a year earlier. The rise in costs mostly stemmed from hiring about 1,900 staffers, real estate acquisitions, salary increases and costs associated with marketing its Chrome browser software.
That jump led to a slight earnings miss, sending Google's shares down.
Further fueling a bear's case is that revenue from Google's businesses outside its bread-and-butter search advertising actually fell. "Other" was 3% of total revenue in the quarter, or $269 million, down from 4% of revenue a year earlier.
"The issue remains whether the increasing expenditures and capital spending the company is undertaking results in meaningful new revenue streams," Gillis said in his note. "Google does not have a history of monetizing its technology outside of search."
