Wall Street Gives Larry Page A Big -1
Google’s first quarterly earnings with Larry Page back at the helm as CEO of Google didn’t go so well last Thursday. Revenues did rise an impressive 27 percent, but expenses grew an even larger 34 percent, partly due to across-the-board salary raises and ballooning talent retention packages.
The next day, Google’s stock took a nosedive, closing on Friday at $530, almost $50 below its close on Thursday before the earnings call. More than $15 billion of Google’s market value, or about 8 percent, was wiped out, the biggest single-day drop since 2008. This reaction was not solely because Google missed Wall Street consensus earnings estimates by a three cents. It was also because of Larry Page. Wall Street investors fear Larry Page and the unknown changes he may bring to the company, which up until now has been one of the stock market’s most consistent earners.
Page’s performance on the earnings call, or rather lack thereof, compounded these fears. He literally phoned it in, stating a few scripted words at the beginning of the call via telephone before handing it over to his CFO and other executives. Page didn’t even hang around to answer any questions, during a less than stellar quarter when the company is undergoing many changes internally. He would have been better off not even appearing at all.
Page spoke for a few minutes at the beginning of the call, which interestingly is not yet available for replay on Google’s investor relations site. In an unconvincing monotone, he said (from my notes):
We’ve had a tremendous quarter, with 27% revenue growth. Tremendous.
[In terms of the recent management changes], everything worked as expected. I am excited about these exchanges. Eric [Schmidt] is working on governmental and external affairs. I am very excited about Google and our momentum, and also excited about our future. Jonathan Rosenberg is transitioning out. I wanted to thank him for all of his insights. We will clearly miss him, and thank him from the bottom of our hearts.
Schmidt and Rosenberg, the senior V of product management who is leaving Google, used to run the earnings calls. The analysts loved Rosenberg. And throughout the call his praises were sung by other executives as well. Page said nothing substantive about the management changes or the new direction of the company.
The biggest question mark over Google right now is about its social strategy, dubbed +1. But the senior VP in charge of social, Vic Gundotra, was not even on the call. Instead, the call was led on the product sides by Jeff Huber, now head of Local, and Susan Wojcicki, head of Ads.
It’s not that surprising that investors responded by giving Larry Page and Google a big -1. They voted by selling their stock.
And maybe Page is fine with that. He wants to manage Google for the long term, not to please short-term investors. They’ll figure it out eventually. The problem is that doesn’t work unless earnings keep outpacing expectations and the stock keeps going up. If the stock keeps going down instead, then all of a sudden it does matter how Page treats Wall Street. Talent is attracted to rising stocks, and Google needs as much talent as it can lay its hands on to go after social, local, mobile, and other new markets.