Google Faces Wall Street Revolt 445
Fred Flange wrote to mention a Times of London article, which explains a minor rebellion against GOOG on Wall Street. The company, which has always refused to offer guidance for its stock, is now being peppered with requests to do just that. From the article: "Sergey Brin and Larry Page, Google's founders and biggest shareholders, made plain in their listing prospectus that the company would reject many of the orthodox methods of doing business with Wall Street and instead adopt a mantra to encourage its employees to do good and not 'evil'. Other Wall Street analysts last night were also preparing reports that agreed with RBC, The Times has learnt. 'The time has come for Google to step into line,' one analyst said. 'It is in the interest of all shareholders, including the company's employees and officers, that the share price achieves some stability.'"
Question: (Score:4, Interesting)
Makes sense (Score:5, Interesting)
This introduces uncertainty, and the last thing that Wallstreet likes is uncertainty. Sometimes, companies have their stock prices going up even after they've lost a major deal simply because the period of uncertainty is over.
So, this makes a lot of sense - Google is causing uncertainty in the price, and that is definitely not good for GOOG's shareholders (or for Wallstreet, for that matter).
What I want to know ... (Score:2, Interesting)
What you get for rocking the boat (Score:2, Interesting)
Re:So . . . (Score:1, Interesting)
It may come as a surprise, but China is a country, can pass its own laws, and enforce them with its large military. If you want to do business in China, or any other nation, you have to obey that country's laws.
Wall Street is not a country, does not pass laws, and has no military. The worst they can do is manipulate your stock price and buy a few congressmen.
It may come as a surprise, but it is possible to do business without Wall Street.
Re:Question: (Score:2, Interesting)
Re:Analysts say "Boo Hoo" (Score:5, Interesting)
Their money was good enough for you to take and use; accountability to their requirements is only appropriate.
Yes, but I don't see the investors complaining. The only ones I see complaining are analysts. Do analysts represent the official corporate line of their investors? How many of these analysts actually hold Google stock?
Google (Score:5, Interesting)
Re:Let's nip that in the bud. (Score:1, Interesting)
Re:Question: (Score:3, Interesting)
Re:Beside the point. (Score:5, Interesting)
Now, for someone to adequately know whether or not a particular stock is good or bad, they would most certainly need to know what the company has planned, and provide such data. You might argue that a stock-holder knew what s/he was getting into while buying the stock, but not providing enough data defeats the primary purpose that one buys the stock for.
By not providing such information, Google is leaving folks uncertain - now, honestly, if your data was good you'd release it because it would do good to your stock price. If you aren't, I'd be worried about what else is going on, and that is most definitely not a good sign.
Google's prospectus claims that the only reason they do not give quarterly guidance is because it encourages short term thinking - now, the analysts and investors would have no problem with it if Google's annual results were as good as they'd hoped. But it was not, so the analysts are claiming that if they had more information (i.e. the quarterly guidance) then this would not have happened.
Ultimately, the analysts are saying, "By not giving quarterly guidance you are not letting us do our jobs properly." While the long term investors (the kind GOOG wanted in their prospectus) may not need quarterly statements (long term investors can look at annual statements and either dump or buy), however if Google needs to survive in Wall Street, they may need to do both, since not giving quarterly statement introduces a lot of uncertainty.
Ultimately, it depends on how they want to grow. Schmidt has indiciated that they want to be a $100bn company, so for fast growth they may have to disclose such information.
Long term investors are going to be very minimal, and they seldom provide the kind of muscle that Google is looking for.
Re:Analysts say "Boo Hoo" (Score:5, Interesting)
For their sake, hopefully none. The SEC is really cracking down on analysts who give positive ratings to stocks in which they have a direct interest, i.e. pumping up investment funds their own company sells. The pressure on Google to talk straight with analysts is probably in response to this policy. If the analyst can't make a good judgement and he has some kind of direct interest in that company, he could get into big trouble if he advises the wrong way.
That being said, I also think that Google doesn't have to play ball with these guys if they don't want to, but it might hurt them in the long run. Sure, it's nice public relations and all that, but pissing off the money people is not exactly something you do. Also, it seems like the analysts are whining more than anything. Google may think they're trying to change the way investors and companies interact and they kind of had the ball in their court for a while, but I think the recent fall in price probably are the investors indicating they want straight talk or else. It's russian roulette at $350 a bullet.
Re:Let's nip that in the bud. (Score:5, Interesting)
Google's majority shareholders are the founders, effectively they do what they want. The shares they sold have limited voting ability, thus limited ability to direct how the company operates. Investors knew, or should have known, those very important facts before investing.
Wall St. is just very used to getting their way, so when an organization doesn't toe the line they get pissy, as another poster mentioned this is a test of Google's business ethic. Either they'll stick to their guns or fold. IMHO folding will be the first substantive sign that Google as a business is morphing into our next technology monopoly that 15 years from now will be the equilivant of MS now or IBM in the 80s.
l4h
Re:Makes sense (Score:3, Interesting)
Uncertainty is also produced by analysts going on TV and speculating.
Worst of all are the short-sighted stock market gamblers who want ruinous long term tactics for short term profits.
Just imagine this: "Google isn't leveraging their home page with advertisments like Yahoo and MSN, so I'm downgrading their stock!" and drives the share price lower. The fact is if these analysts knew how to run a company they'd do it instead of offering armchair advice.
Re:Analysts say "Boo Hoo" (Score:2, Interesting)
What I see happening here is a crash in Google's stock because they stand their ground, causing one or more big investors to sell. If they don't stand their ground, then IMO, they are just another bubble stock, because the only reason they would kowtow to Wall Street would be because they really are just a paper tiger. It seems kind of interesting to me that Google lately is trying to demonstrate it is going new places (Google Video, Gmail for Domains, GDrive), but isn't really cutting the mustard. Google Video was a complete farce, and CBS' early withdrawal is a major blow to them, and the fact that the only major network they could sign being CBS is another major blow.
I hate to say it but I think this is a lose/lose for Google, one of my favorite companies. They're screwed if they play ball, and they're screwed if they don't. The Wall Street guys have thought this through, and they believe the short term investor loss from Google crashing is worth the gain of making Google into an example that nobody else will ever contemplate following in the future. I also think perhaps the employees there have been indulging a bit too much in the salmon lunches, doing laundry, free massages, etc. and not enough busting their asses and making results. Anyone in a successful enterprise, no matter what size, will tell you hard work is an essential component of success.
Re:But, a rebellion against all companies is going (Score:3, Interesting)
Casino Capitalism (Score:3, Interesting)
Wall Street is not a function of how bus operates (Score:2, Interesting)
I think it is very important that publicly-traded companies are accountable for their actions. I also think that they have duty to both those inside the business and those who hold shares. However, I don't think that the generalists on Wall Street should be in the business of making a company run one way or another - it is not incumbent on investors to decide company policy. Market forces will take care of businesses that don't do the right thing. Said differently, the company needs to be the one minding its business - Wall Street will punish or reward based on the merits of the company.
Some hair spiltting (Score:2, Interesting)
Usually, the purchasing company's stock price drops and the purchasee's stock price increases. A lot of folks risk arbitrage this position when news of a merger hits the street.
Risk arbitrage goes like this: sell short the aquiring comanies stock, or buy the Puts and hedge with the stock. Buy the aquiree company's stock and or buy the Calls and short the stock as a hedge. It's not a one for one transcation. There's some ratios of how much to buy based on the volatility of the underlying stocks, risk free interest rates, and some guessing.
Of course, every transaction is different.
The reason the aquiring companie's stock goes down is because usually the merged company does worse. Synergy? Hah! Another reason is that when companies start buying others is because their earning are or have decreased and they're trying to boost performance by buying others. So either way, buying other companies is usually a hint of troubles ahead or now.
Of course, everyone on Wall Street has their own opinions as there will be after my post.
And you're right about Wall Street: in a nutshell, whatever their title is on Wall Street, their job function is sales period! That means th investor get fucked somehow!
Uh, how about... (Score:4, Interesting)
They said from the beginning that they wouldn't provide typical forecasts.
Nobody forced anyone to buy their stock.
Predictably the stock is less stable, and will presumeably (according to simple capitalism) be valued slightly lower because Wall Street prefers stability.
Done.
Carping about "oh they should do this" or "should do that" is stupid. You bought it, you don't like the conditions or the company, you sell it. If you have lost value, well, you've just been bitchslapped by 'the invisible hand' (plus your own unrealistic expectations).
Providing Guidance is Bad (Score:5, Interesting)
So what happens? The company does it's best to juggle the numbers so that they match the estimate. This is one of the reasons that accounting practices are as bad as they are -- there is a huge amount of incentive to mislead.
But not only this conflict of interest, what does a company do if they have inside information that will affect their profits in the next quarter? They can't announce the information *and* they can't give accurate numbers (because they can't justify them). So if you are planning a big cash purchase and you know that earnings are going to be low because of it, you are stuck -- you either mislead the analysists or you give them a hint that something big is coming down the pipe. Both are really bad.
But having listened to a number of analyst meetings, I am constantly shocked how clueless these analysts are. They aren't even aware of basic public information that is published in the newspaper. One company I worked for won a large lawsuit (several million dollars) from the federal government a month before the quartly results were released. It was big news in all the papers. At the analyst meeting for the results, the analyst from Merill Lynch asked where the money came from. "The government lawsuit" was the reply. "What government lawsuit?".
Re:It IS time (Score:3, Interesting)
This concept contains a hidden assumption that the company can maintain its current growth rate for at least 3 years. Since Google has announced publicly that the growth rate is going to fall (which should have been obvious to everyone) they are selling at a discount by this measure.
Hot damn, I was RIGHT?!? (Score:5, Interesting)
Damned if the attack hasn't gone full-agressive and public. The message is clear: give us the information we want, or we will do our best to ruin Google. This is extortion.
The analysts need to be regulated again. This is completely out of control.
Re:They'll give in ... (Score:4, Interesting)
Investing Basics (Score:3, Interesting)
Investing was about taking money that you have, and using it to help someone else do something you thought needed to be done. Usually, if they proved successful, this meant that the value of the effort you supported grew, and you could sell the portion of that business which you owned if you so chose.
Oh, and if the endeavor was wildly successful, there would enough of a surplus of money you could get paid without losing any of your interest in the endeavor!
Today's investment system doesn't care what the company being invested in is trying to do, all that anyone cares about is whether the stock will A) pay dividends which can be used as income (and this portion of the marketplace appears to be dwindling) or B) grow in value so quickly that you can sell your interest in a matter of days or weeks and make a profit.
Investing used to be about creating products, services, business and livelihoods. Now it is about sucking everything out of a company you can, and moving on to the next company.
Google said (my interpretation) that they want to cater to the original idea of what investing is about.
The guys who drive the current version of investing are trying to force Google into the paradigm by which the analysts even exist in the first place . .
What I don't understand is why any of this surprises anyone who's paying even the least bit of attention.
Re:That's FUD (Score:3, Interesting)
Re:Beside the point. (Score:2, Interesting)
But that's my point. When customers do this, then a situation develops where there isn't anything the shareholders can do to get their money out of the company other than selling off the pieces and shutting things down.
Look at Ford, they're having a hell of a time serving the best interests of their stockholders. But why is this? Its because they're not serving their customers. There's only one way out of this mess (long term) for Ford and that will be to make better cars that more people want. But for short term investors, liquidating enourmous chunks of the company works just as well (and is actually less costly) than building better cars. Short term investors (lumping the anlysts in this one) only want to make sure they don't lose money now (or next week), they really don't care whether the company is around in 1, 2, 5, 10 years from now.
Its just not the way I think business should work. Sure paying attention only to shareholder value is easy, but it won't make great companies. Those that pay attention to other factors as well are the ones that will succeed in the long term. Google knows that. They know the shell game the analysts want to play, and they don't want to play along. They want to be judged on other factors, not quarter to quarter results. I say, good for them.
It's a free market (Score:5, Interesting)
Investing in a profitable company? Horrors, we can't have that. Gives all the crap analysts and brokerage houses are pushing a bad reputation! You need to buy the blue sky buzz word of the month pump-and-dump being touted on TV. Not some innovative company with large sales and a good product line!
I wonder. Google has pissed off DOJ and Wallstreet. It isn't the first time the Wallstreet crowd or the Bushites have played dirty.
In addition, there is a tradition in business of demanding conformity. If you stand out in a corporate culture you are either pecked into conformity or eventually fired for trumped up reasons. Very much like high school in some ways.
It will be interesting to see what happens. As long as they are profitable they do not have to change. Can they last long enough to change Wallstreet? Or are they doomed to cave in?
Re:Real Estate outperforms Stocks... (Score:3, Interesting)
Real Estate does out perform the stock market, because it is lower risk and people give you money at lower rates...
Yeah, but the main thing that is driving real-estate is inflation (which BTW, is greatly understated). That is a very dangerous game to be betting on right now. People have always done well investing in realestate because the fed always pushes more money into the economy, which always creates inflation that drives up the value and also eventually drives up peoples pay. But today with wage pressures overseas, and information technology forcing "technology deflation" and driving down margin (eg, a 10 gb hard drive 20 years ago cost well over 10K) - that is an extremely dangerous bet to be making at this time - we are just comming off the internet boom.
I could very easially see a scenaro that the current deflationary pressures make it impossible to pay down debts, so the Fed puts more liquidity in the economy, and that in turn drives up prices to record levels, but not pay. That would make it harder for people to pay on their already over-leveraged debts, it would dry up refinancing, and force the fed to put more liquidity into the economy - causing a snowball effect of out of controll inflation and massive defaulting debts.
The bottom line is still, the US economy has more debt than it has capacity to pay off, and printing up money/adding liquidity to counter the deflationary forces will make things worse. It just kills me to see people debating between stocks, bonds, and housing when the dollar's very existence is at stake. IMHO, anyone who doesn't have a precious metals backup plan is just plain insane.
Re:Beside the point. (Score:3, Interesting)
Re:Beside the point. (Score:3, Interesting)
Re:Beside the point. (Score:3, Interesting)
So you want to baby everybody? If someone (or in this case, a large group of shareholders) makes bad decisions, he or she (or they) have to face the consequences. Basically it because a game of musical chairs. Somebody gets caught losing money eventually (maybe even a large pyramid scheme). But it's based on the decisions they made. I don't think we let people fail enough, so they never learn. If you live in a flood zone and don't have flood insurance, well, in the words of Bill, "Here's your sign." If you vote for short term gains and get caught losing money, well, maybe you've learned something and you'll change.
And personally, I don't think Ford's problem isn't that they aren't serving their customers (according to Edmunds, for 2003 Ford had the following cars on the top ten best sellers: F-Series, Explorer, Taurus). Their problem is that they are reselling the same car to the same buyer and not bringing in new buyers. What they need to do is to get more people to test-drive their cars.
And lumping analysts in with short-term stockholders is a bad idea. It really depends on who is the analysts customer (yes, they are in fact serving a customer). My mother managed mutual funds for large investors, investors who bought funds and planned on keeping them for decades. Her analysts were to give her the data to determine good long term investments, but in order to make money, you don't forego a good short term investment.
-dave
Re:that's the problem... (Score:3, Interesting)
So, no, I don't see Google saying "we don't know what we'll be doing in the future" as evidence that they are short term thinkers, same as everyone else. They are much more aware of how difficult long term planning is in scientific endeavors than, evidently, these stock analysts. If Google tried to do what they want, I'm sure we'd just hear different whining: "your plans didn't work and you changed them and your predictions were wrong!" instead of "you aren't tellling us any plans or predicitions!" A public corporation comes with baggage and expectations a scientific laboratory does not have. Google is really more like a scientific lab than a corporation, and refuses to be tied in the straightjacket of short-term expectations.