When is making $20bn in three months not enough? When your name is Google Google parent company Alphabet is feeling the heat after it failed to reach earnings targets this past quarter. The Chocolate Factory took a beating on Wall Street after it reported non-GAAP earnings of $7.50 per share in its 2016 Q1 period, which ended in March. Analysts had expected earnings of at least 7.96 per share. Here' …
You hit it dead on. Most stockbrokers I've talked with(I talked to about 10 when I retired to move my 401K to an IRA) admit it's about emotion. Just like investing in a startup... emotion or buying new car.
I know anecdotal evidence isn't evidence, but they seemed pretty convinced based on what people told them to buy or sell.
There's some reasoning behind it, yeah.
Stock prices aren't just a reflection of current earnings but the discounted net present value of all future earnings.
Those future earnings are obviously uncertain and so stock price changes can fluctuate substantially on seemingly innocuous current earnings because of a change in the sentiment about future growth prospects.
That fluctuation is especially acute for web 2.0 stocks for two reasons:
1) because their price earnings multiples have (often insanely) high growth expectations built in the few percentage points that Google missed by compound to a permanently lower stock price if analysts think they're part of a long term trend.
2) The web is a winner takes all market to a much larger degree than others and so any indication that Google is losing its iron grip on search (unlikely in the medium term) or that it's pouring good money after bad in its 'other bets' will lead to a larger backlash than in more competitive markets.
In simple terms, if Google are perceived to be wasting their current profits on future bets that won't pay off then this kind of thing will happen more often in future as its core growth engine matures and tails off.
That's not to say that the 6.5% dip is justified. Markets tend to overreact in the short term due to momentum from speculators.
However, the idea that finance people are or should only react to current earnings is the same kind of simplification error that non-IT people make when they complain that IT support are obstructive ('I have a current requirement and they're blocking it by not letting me install x').
Reality is always more complicated than the here and now, and earnings reports are a way for companies to share more information than just last quarter's earnings.
The reason is because Google's P/E is way too high, and these numbers show once again they cannot maintain the growth required to meet those P/E numbers. So yes, emotion is involved, but emotion is keeping the stock price a lot higher than is justified.
Their P/E should probably be closer to 20 but the market isn't prepared to accept that reality yet as it would drop the stock price a further 35-40%. P/Es can stay unrealistic for many many years, Amazon and Netflix are proof enough of that. Or Microsoft, for that matter, which has a higher P/E than Google despite no one (including Nadella) really believing that Microsoft has better future growth prospects than Google!
The logical reason is that decisions are made based on emotion, not logic. Therefore it's likely that the stock will drop because those emotional spur of the moment decisions by other punters.
So sell quick while the stock is still up a bit and then buy back later in the week when the prices are lower. It's actually very logical.
Apple has done even better - making almost that amount in profit for a quarter, and still seen its shares bid down as they failed to meet Wall Street's overly optimistic expectations.
It all evens out in the long run, as failing to meet guidance will (eventually) cause Wall Street's expectations to be less optimistic and more easy to meet. However, in a company like Google with a rather lofty P/E, it may also cause Wall Street to reassess their expectations for future growth, which is what I was warning about above.
Look at stock prices and/or trading volumes when the local team is playing in the soccer world cup, or other similar sporting events.
Even for a firm as vast as Google there must be a top limit of growth for any individual business area.
And OMG there must still be some competition if revenue per-click is still reducing so take that fear-mongers.
Proof positive that those who count other peoples money have no grip on reality.
My particular gripe is the way that projects are always described as 'over budget' never 'under funded'. Putting the blame on the people that spent years working on a project, rather than blaming the people who spent half a day in a meeting guessing the costs, then knocking 10% off that to get senior managers approval.
BTW if the anal-ysts are so good why aren't they running a google sized enterprise?
"why aren't they running a google sized enterprise?"
Because that would involve pulling their finger out their asses and doing more than just waving it in the air?
Because they'd actually be responsible for getting things wrong? Because they wouldn't just be playing with other people's money, but would be personally committed to fulfilling their own predictions?
Once upon a time there was this car manufacture that had its own show rooms and did really well then one day a penny pinching accountant thought it would be a great idea slowly remove staff from its show rooms to save money one by one a just leave customers to browse cars and buy there products all by them selves.
It went bust.
Google web developers are your sales reps. You look after them any they look after you, if you alienate them they will stop recommending you to your customers.
Stop cutting our tools like Keywords
Start paying taxes in the correct country
Use local staff in local call centres so people can actually understand what they are saying, (its the same with banks no one want to bank with them if they have to call an Indian call centre).
And people may start to like you.
Not acting like the Microsoft of 20 years ago would probably help a lot, too...
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