The Marketplace Report: Google's Stock Slide

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Alex Chadwick speaks with Tess Vigeland of Marketplace about the dramatic drop in stock prices for the online search engine Google. Though the company performed well in the last quarter, they didn't perform up to expectations.


Back now with DAY TO DAY.

Good news and bad news for Google, the great Internet search engine. Yesterday it reported profits up from a year ago, but not up so much as investors had hoped and so the company's stock price actually slid, and a lot. We're joined now by Marketplace's Tess Vigeland. Tess, what happened?

Ms. TESS VIGELAND (Host, Marketplace): Well Alex, Google reported its fourth-quarter earnings right after the closing bell and its net income almost doubled from a year ago to $372 million, seems like pretty good news. But it wasn't nearly as great as Wall Street was hoping for, so investors have been dumping their shares, wiping out more than $12 billion in shareholder wealth, and that includes $3 billion in losses for the company's two founders. Wall Street was expecting $1.76 a share in earnings; it was actually $1.22.

CHADWICK: So why is this such a surprise to analysts and investors?

Ms. VIGELAND: 'Cause they didn't know it was coming. You will often hear from companies during their earning's calls that their expecting the next quarter to be better or worse or they're expecting the year to be better or worse; Google doesn't do that, so investors had no heads up. And I spoke with Standard & Poor's analyst Scott Kessler, and he says that's part of the reason everyone was so surprised by these quarterly results.

Mr. SCOTT KESSLER (Internet analyst, Standard & Poor's): Google has indicated repeatedly that they're not overly concerned with quarter-to-quarter results and that's all well and good for Google; but because they're stock trades on exchange is purchased and sold by investors and is covered by Wall Street analysts, unfortunately for them perhaps, they need to, on some level, conform to that reality.

Ms. VIGELAND: But in fact on yesterday's conference call, Google's CEO Eric Schmidt reminded investors that the company has a policy of not giving what is called forward guidance; and it's not planning to change that any time soon. But this is a very clear lesson that it is subject to the Wall Street expectation's game even if it decides not to play along.

CHADWICK: But don't a lot of analysts say that there's a problem with this kind of short-term fixation on quarterly numbers and we'd all be better off if we thought more long-term; isn't that what Google's doing?

Ms. VIGELAND: Absolutely. And Google's founders have said repeatedly that they don't look at the quarterly numbers. Some analysts are pointing to very specific reasons for this not-as-good-as-expected quarter; there were some tax issues involved for other one-time items. Kessler says that there is a deeper issue that is increased competition from the likes of Yahoo and Microsoft that could affect things over the long-term. But remember, Google went public just a year and a half ago, debut at $85 a share, now even after this earning's report it's hovering just below $400 a share. And there is one analyst who is sticking by his estimate of $600 a share by the end of the year.

And later today on Marketplace, we'll look into the decision by Kentucky Derby to accept sponsorship.

CHADWICK: Great. Thank you Tess.

Tess Vigeland of Marketplace, produced by American Public Media.

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