Google Stock Gains Volatility After a steady and spectacular climb, Google's stock price has become volatile in recent weeks. Unlike other companies, Google doesn't provide earnings forecasts. An unintended consequence is that whenever a company executive speaks, the market reacts in a big way.
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Google Stock Gains Volatility

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Google Stock Gains Volatility

Google Stock Gains Volatility

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RENEE MONTAGNE, host:

Stock in Google slipped yesterday, after the Internet company accidentally posted internal financial forecasts on its Web site. Google says, in some cases, the targets are no longer accurate. Google deliberately avoids offering the kind of quarterly sales forecasts that many companies provide, and as a result, investors tend to seize on whatever information the company does make public, even if it's accidentally. In recent weeks, that's meant a wild ride for Google shares.

NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

Once a week, Google tallies up the biggest gainers from its search engine, and compiles the Google Zeitgeist, a fast moving barometer of fickle, public taste. Some of the top entries of last week, Sasha Cohen and Dancing with the Stars, are nowhere to be found in this week's Zeitgeist. They've been replaced by Kirby Puckett and Deal or No Deal. Sometimes the stock market can be equally erratic. Google shares that topped $475 dollars less than two months ago, are worth 25 percent less today. Google managers, like CEO Eric Schmidt, insist they're not distracted by such short-term fluctuations.

Mr. ERIC SCHMIDT (CEO, Google): There's this belief that somehow the management team controls the stock price directly, and that is probably illegal, and it's certainly a bad way of running a company. Stock price evolves as a lagging indicator of the greatness of the business, and its success. And any attempt to manipulate it, other than as a lagging indicator, to me, is suspect.

HORSLEY: Google stressed its long-term orientation two years ago when it first sold stock to the public. A founder's memo, drafted by cofounder Larry Page, said Google would not provide traditional, quarterly financial forecasts. Page said focusing on such short-term targets would be as pointless as a dieter stepping on a scale every half hour.

In the absence of quarterly guidance about sales and profits, though, investors have been left to guess at Google's financial weight. That can cause big swings in the company's stock price. Whenever the chief financial officer warns of slow in growth, for example, or when outdated information is accidentally posted on the Google website.

Mr. LARRY PAGE (Co-Founder, Google): The no-guidance policy generally tends to make things more volatile, not less volatile for the stocks, so what, as an analyst, we usually do recommend against that.

HORSLEY: Senior analyst Safa Rashtchy of Piper Jaffray remains bullish about Google's long-term prospects. Despite the recent slide, he expects the shares to hit $600 dollars by the end of this year.

Mr. SAFA RASHTCHY (Senior Analyst, Piper Jaffray): We think that Google still has a lot of strength. The past ten years or so, was Microsoft's era. We think the next years, it's Google era.

HORSLEY: Others are more cautious. Equity Analyst Scott Kessler, of Standard and Poor's, worries that even as it branches into new businesses, Google remains overly dependent on Internet advertising to make money, and he expects more companies to challenge Google in the near future.

Mr. SCOTT KESSLER (Equity Analyst, Standard and Poor's): We think that the competitive landscape, while it's not necessarily changing substantially today, it is evolving, and it could tilt away from Google's favor at some point in the next, say, year or two.

HORSLEY: Kessler was among those who peppered Google manager with questions at an analyst conference last week. But he disagrees with some Wall Street types, who insist it's time for the company to drop its policy against quarter-by- quarter forecasts. Kessler thinks the company could avoid those forecasts, and still satisfy investors' curiosity, if Google simply shared other measures of its performance in a regular, predictable way.

Mr. KESSLER: I think, frankly, that you can have both. I think that you can, as a company, be very, very focused on the long-term, while also providing helpful and detailed information to the investment community on a recurring basis. And I think that is, ultimately, what one of the company's goals has to be for 2006.

HORSLEY: Kessler thinks it will take time for Google to improve its reputation for sharing financial data, but it shouldn't be impossible, especially for a company whose mission is to organize the world's information, and make it universally accessible and useful.

Scott Horsley, NPR News.

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