Eweek recently presented an article entitled Boggled by Google: Wall Street Way Off Mark. I say forget the analysts, and good for Google. Keep’em guessing boys, while you continue to beat the pants off even your own internal estimates. The game that is generally played between analysts and the companies they follow is getting turned on its head here. Google has a complex business model; one that a white-shoed analyst with a fresh Harvard MBA is going to have tough time picking apart (that is, unless he or she also has a PhD in mathematics from MIT).
Let’s cut to the chase folks. Sell-side equity analysts exist for one purpose, selling stock. These analysts mock up a spreadsheet based on what they heard in the last conference call, publish a report setting a “new target price” of “X”, then pass it on to their brokers. The brokers call all their clients, pushing said stock, using this fantastic report as justification.
Now in an environment where company “Y” is selling widgets, and every man, women and child needs exactly one widget, and each widget lasts exactly 1.5 years, maybe an analyst serves some purpose. Who has the time to extrapolate the widget manufacturer’s future results, using their present cost structure, the next five years’ demand for widgets from population growth estimates, and a probability factor for new companies entering the widget market? Not me.
But Google isn’t selling widgets. They are selling an extremely dynamic advertising model, one which has to take into account new AdWords clients, new AdSense publishers, ever increasing keyword rates on a virtually unlimited combination of said keywords, competition entering and leaving the nascent market, and a host of other variables. Furthermore, they have a slew of services they have not even applied a business model to yet, and they aren’t talking; this makes me believe they are up to some even bigger things.
And they don’t really need to talk. They have an ever growing pile of cash, and an issue with a thin float (as compared to many companies their size). They don’t have to impress anybody outside of themselves. I couldn’t think of a better position to be in, as a public entity.
If a glorified marketing assistant (which is essentially what a sell-side equity analyst really is) thinks they have a snowball’s chance in hell of actually predicting results on a company like Google, then please introduce yourself. If you can hit Google’s results, or the results of any other company like them (without being handed the financial statements the night before their release), I would like to follow you, or better yet, work for you, as you would obviously be a genius beyond compare that I could learn volumes from.