Google’s Attempt at Treating Shareholders like Puppets

Google’s Attempt at Treating Shareholders like Puppets
By: Todd M. Schoenberger, @TMSchoenberger

A next to impossible situation is taking place virtually every day this month as the nation’s largest corporations making up the S&P 500 publicize their quarterly confessionals in hopes of persuading investors that their plan for generating revenues is a good one. And, according to Thomson Reuters, only 64 percent, so far, have surprised us.

Unlike macro-economic data, which can change literally by the day, quarterly earnings reports tell us if management has positioned their respective company to a path of consistent growth with increases in market share. If the company is successful in hitting its goals, then we turn to the “outlook” or “guidance” given for upcoming quarters. If we’re bullish, we better hear the company is, as well.

The most glaring example of how powerful “guidance” can be occurred yesterday when Google, Inc. accidentally released its quarterly earnings report nearly four hours early. It was a perfect storm: The incomplete report provided awful earnings data, thus forcing Google to halt its stock. The immediate sell-off prior to the halt had amounted to $22 billion in evaporated shareholder value. Ouch.

History has shown us that Google’s stock typically has extreme volatile swings on earnings day. As with any company, there is always going to be unanswered questions prior to a release; but in Google’s case, the uncertainty hits at an almost-gossipy conversation usually found in halls of a standard high school. And, as any truth-seeker will tell you, the way to curb pointless thoughts is to offer clues leading to an educated solution.

Google doesn’t do this. In an almost ‘nah nah nah’ moment, its management likes to make you guess as to what the quarterly results will be. This isn’t just unprofessional; it hurts shareholders. The conclusion usually means analysts are working with a moving target, and if the company misses like it did yesterday, the result can be awful for valuations.

Wall Street and, let’s be honest here Main Street, were seriously taken by surprise by the earnings miss. Google’s earnings were $1.63 below the average consensus estimate, and revenues missed by $540 million. $540 million! As you can see, there’s a huge disconnect here, and if Google’s management wants to be taken seriously, they should breakaway from this juvenile ‘Romper Room’ mentality and step up to the land of professional accountability.

To the cynics in the room (yes, this one included), I always question the probability of an “accident” or “intentional wrongdoing.” It’s interesting to think that something so monumental—and market influential—such as a quarterly earnings report for a company of Google’s brand, would mistakenly be distributed prematurely. Funny how the mishaps in corporate America this year have been focused on technology-centric companies. Just sayin’.