January 21, 2012
In the following video, senior technology analyst Eric Bleeker and chief technology officer Jeremy Phillips discuss Google's most recent quarter. The company sold off yesterday to the tune of 8.4%, as cries rang out about its "shocking miss."
However, Eric says that the reaction to Google's earnings was Wall Street's quintessential overreaction. First off, the company was hit hard by foreign currency while it benefitted last quarter. That's a double whammy for the company:
- Last quarter looked especially strong because of favorable currency conditions. That led to investors anchoring on last quarter's results and extrapolating forward to Google's having a better seasonally strong fourth quarter than it was actually capable of.
- Google got slammed this quarter as the effects of foreign exchange moved back against it. Even with foreign exchange hedging programs in place, the company said revenues would have been $239 million higher if currency rates would have remained at the same level as the third quarter.
Throw in the fact that Google doesn't issue forward guidance, which leaves Wall Street to its own devices on guessing results, and the company was up against impossible analyst expectations.
Eric says he'd like to have Google see broader gains abroad, as international revenue has been stuck between 52% and 55% of revenue while mobile competitor Apple has seen its share of international sales exploding. That growth has been harder to come by in part because companies like Baidu and Yandex dominate their domestic markets. However, with Google at less than 20 times earnings while continuing to grow sales by 25%, Eric says investors selling after the company's last report are making a huge mistake.
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