Google will miss 2005-Q4 quarter revenue estimates.
That is my prediction. For some history, read my previous blog posting about how Google increased the monetization of their SERP in Q3 by:
(1) adding up to 3-north-listings (above algo results),
(2) increasing north coverage significantly, and
(3) Variable-Term-Pricing (setting min max-bids on a per-term basis, rather than a flat $0.05 min).
These changes led Google to a very strong Q3 where they showed a sequential growth of 14% over Q2 of 2005, a very strong increase for a typically slow summer quarter. That, however, sets the standard very high for Q4 of 2005, hence my prediction that they will miss the wallstreet estimates for Q4 sequential growth. I monitored their UI closely in Q4 and did not see any significant monetization changes to boost Q4 ala what happened with Q3.
In fact, Google admitted that fact in an Nov 2005 SEC filing which stated: “seasonal trends in the third quarters of 2005 and 2004 may have been disguised by certain monetization improvements to our advertising programs,”
That said, there is many other reasons to sell GOOG, for example:
1. YPN will be hitting the Adsense program hard in 2006 once it’s out of beta. The adsense program is indeed starting to slow already, the google network revenue grew by 7% sequentially in Q3-2005 as opposed to 20% for google site.
2. Google is going nuts with capital spending (it spent almost twice what Yahoo spent)
3. Google is also hiring like nuts, 800+ people in Q3, on top of 700+ people in Q2 (i.e. a 1/3 of Google’s work force joined in these two quarter). There is two downsides to this: (a) they are hiring lower quality folks (we interview same folks and see who they pick), (ii) they are hiring like yahoo was in 1999/2000, i.e. hiring today expecting that more revenue will come later, that is not always true (as yahoo learned the hard way and laid off a ton of folks in period 2001-2003).
4. Google has been growing the cost of revenues much faster than revenue, in fact their operating margin fell from 35.2% in Q1 of 2005 to 33.5% in Q3
In summary, if you have been thinking about selling/shorting google, now might be a very opportune time. I will symbolically short 1 share of Google tomorrow 
– amr
update: A colleague of mine reminded me that Google did a SERP UI change in early December, they increased the font-size for the East adword listings (i.e. listings on the right rail of the page). We call this type of change an “accelerator change” which is usually done to try and catch up with revenue projections, its another signal that Google’s Q4 quarter is a bit in trouble. Note that they launched this change after the peek of xmas shopping.
update: As promossied I did short Google on the morning of Jan 13, 2005. I actually shorted 10 shares at $465.
On top of all this, I wonder if the G hype is starting to die down a little.
Look at G Base and G Pack–both kind of disappointing.
DG
Comment by David Gerster — January 12, 2006 @ 11:22 pm“hence my prediction that they will miss the wallstreet estimates for Q4 sequential growth.”
What is wall street’s revenue project for the quarter just so I can track to see if you right
Comment by Nik — January 19, 2006 @ 11:21 pmThat was smart. Look at their price drop today!
Comment by meech — January 20, 2006 @ 12:46 pmYou are dead right Sir! They are indeed down from $470 to $399 in two days. I wonder how low can it go
Please also do predict when you think is the right time to cover your short position if at all - before or after the earnings 
Comment by Manish Tayal — January 20, 2006 @ 1:29 pmThe Variable-Term-Pricing (minimum bid) was introduced only in the 3rd week of August, so i guess it would have had a big impact on Q4 than Q3 (because advertisers take time to change bids)…
So for this reason i bet Google would report a terrific Q4 and as a symbolic measure i also bought 10 shares last friday
Comment by Gopi — January 23, 2006 @ 11:50 amNote that Google rolled out the 3rd link on August 15th (mid-3Q) but will benefit from an entire quarter of the 3rd link in 4Q. This should lead to incremental monetization gains when examined Q/Q.
Comment by Joseph — January 23, 2006 @ 12:08 pmSuper interesting post Amr. With Adsense now at something like 40% of revenues for Google I see a potential HUGE revenue hit when YPN gets out of beta and MSN joins the party later this year. Yahoo has a lot of power here. If they did an “intro” revenue sharing of, say, 90% for six months you’d see publishers drop Google faster than a DOJ subpoena.
However, GOOG pricing is not at ALL a rational process any more than Yahoo pricing was back in 1999. Therefore I’m not convinced missing earnings will knock the stock price as much as it “should”.
Comment by Joe Hunkins — January 23, 2006 @ 2:54 pmNice analysis - makes sense. I am also seeing some average candidates going to google. Their hiring criteria seem to have dropped substantially from two or three years ago.
Comment by Arnie Gullov-Singh — January 23, 2006 @ 3:44 pmNice post Amr. Lets podcast about this.
JOhn
Comment by John Furrier — January 23, 2006 @ 3:58 pmGood analysis, Amr. GOOG also has a nice gap to close all the way down at
Comment by Marc Eckelberry — January 23, 2006 @ 5:41 pm303.20 if it can’t hold ground very long above 50 dma at 423.40.
Feel free to stop by at http://aheadofthenewsblog.blogspot.com and post some
of your comments on Google. I write for optioninvestor.com live futures, but also
run a blog and enjoy this kind of commentary.
Best,
Marc Eckelberry
> they are hiring lower quality folks (we interview same
> folks and see who they pick),
I’m curious about this. By what degree would you estimate this is true?
Comment by Karl — January 23, 2006 @ 5:59 pm90 million users in Yahoo Groups. 2 billion minutes/month on Yahoo games. 250 million Yahoo Mail users, supposedly largest in world. 2 billion images on Yahoo photos. We always thought the Internet was never about one killer app.
Comment by patil — January 23, 2006 @ 11:05 pmYet Yahoo can’t improve it’s bottomline
google’s new products (googlebase, googletalk, map.
Comment by bsgoogle — January 24, 2006 @ 7:40 amfroogle, print.google, mobile, online video, gmail…etc) earn google nothing. A large percentage of Google profit still came from Adwords…
By that logic Y!Search must have had several quarters in which they were
either stretching or overshooting revenue; Y!Search
a)reduced # of organic listings shown from 20 to 10 9/04
b)increased # of paid listings shown atop SERPs in ‘04
c)changed default match type from Exact to Broad 9/04
d)temporarily banner several large competitors from search in 2004
The list goes on and on. IMO, both search engines are doing everything they
can to increase monetization as far as possible without alienating users. That’s
well and good too, and I would be surprised if they didn’t. But it doesn’t
necessarily make one or the other a buy or sell.
-Shorebreak
Comment by Chris Zaharias — January 24, 2006 @ 9:18 amvery interesting & very bearish
i agree with some of your points, however i think you’ve glossed ver the most important. that is the variable term pricing.
yes that was introduced in Q3, but it will have a massive effect in Q4 as all the stupid
(thanks nordstrom) big players come into the market in force for xmas.
most of my clients & certainly many people across the web (perry marshall & andrew goodman)
have noticed that they are paying 10 or 20c a click… sometimes even when they are the ONLY
bidder on a kw.
This will have a massive effect on earnings for the busiest Q of the year.
yes, some advertisers (like FTD) will say its too expensive & bail out.
but the majority will either not know what their ROI is accurately enough to pull out of
the arms race, or they won’t care (take the loss leader & gain share)
or they have so much cash they don’t care
either way, Q4 rev is going to be higher than most people think.
cover that short
cheers,
Comment by mikey rhodes — January 24, 2006 @ 11:52 ammikey
Hi Amr. I found your blog linked to from Caterina Fake’s. In reading some of your postings I find it unsettling that you have such a vehement dislike of Google but fail to really say anywhere that you work at Yahoo. I wouldn’t have known except that Ms. Fake mentioned it in her post. Not that you can’t talk about whatever you want to on your personal blog but when so much of your posting is bashing a competitor it seems reasonable to give your audience some note of where you’re coming from in your assessments of Google.
Comment by Matt Grommes — January 24, 2006 @ 2:47 pmWhy are you jealous
Comment by Zoolander — January 24, 2006 @ 8:46 pmTweaking the UI intentionally to raise click volumes is just plain evil. But at the end of the day, it’s just another business decision, same with the Google.cn censorship story.
Comment by Marc — January 25, 2006 @ 4:51 pmI have to stonlgly disagree.
Comment by Justin — January 27, 2006 @ 8:22 amOne good point you made is the extra North adwords exposure but the point you miss is that applies to 4th quarter too. Googles market share increase was significant in Q4 according to alexa.com and Internet sales generally are up almost 100% on last year. If Internet traffic/sales are up 100% on last year then it’s reasonable to assume that Googles growth should be in line with the rest of the net and since Google have dramitically increased market in Q4 then my guess is that they will report bomming results.
Something else you have misread is the “accelerator change”. You should be aware that Google have several areas that they could easily monetise. My predictions are partly based on the fact that they have shown NO desperate attempts to bump up Q4 results and saying this I think Google will want to make a point this Q4 of beating expectataions.
Comment by Justin — January 27, 2006 @ 8:28 amAmr - may I be the first to say “VERY GOOD CALL!”
Comment by Joe Hunkins — January 31, 2006 @ 1:10 pmI hope you make this a quarterly tradition.
Hi Amr:
good job, predictions based on solid facts, and in this case that you abserved directly.
You may get your 15 minutes of fame, I linked your comments at the Motley Fool about 10 minutes before the close, and the ensuing official Google announcement in line with your assessment.
http://boards.fool.com/Message.asp?mid=23637974
Cheerios,
Comment by Premarupa — January 31, 2006 @ 1:18 pmPR
Congrats!
Comment by jr — January 31, 2006 @ 1:36 pmInteresting. Congrats on making the call.
Comment by Scott — January 31, 2006 @ 2:21 pmGood work Amr! Nice call…
Comment by brian — January 31, 2006 @ 2:25 pmYou win.
Comment by Susan Keplinger — January 31, 2006 @ 3:06 pmAmr-you are a prophet!
Well done.
Comment by twain — January 31, 2006 @ 3:35 pmAmr,
Comment by TechTrader — January 31, 2006 @ 3:55 pmGoogle hit revenue estimates. How does that change your analysis?
Good call buddy. I had the same feeling, but was less able to assess. Shorted a bunch. Thanks a $20K (wish it could have been a billion)!
Dr. Hunt
Comment by Dr. Hunt — January 31, 2006 @ 4:04 pmHi Amr,
I see you deleted my previous comment…
no drama, just poped back to say you were right, I was wrong.
well done on your prediction.
I hope you unloaded those shorts after hours at #360…
already back up to $380 as I type!
don’t think my calls will be too valuable in the morning!!
cheers,
Comment by mikey — January 31, 2006 @ 4:49 pmmikey
You were right to short, but maybe not for the right reasons. Looks like the sales growth was still there. You also failed to mention the competitive pressures expected from MSN.
Comment by John Stevens — January 31, 2006 @ 5:32 pmnice call Amr… you win the Carnac award for Q4
Comment by Dave McClure — January 31, 2006 @ 6:32 pmEven more brilliant…I am a fan….Google is approaching reality!
Comment by Wil — January 31, 2006 @ 7:05 pmThat was one heck of a prediction! Congratulations!!
Comment by Jim — January 31, 2006 @ 7:20 pmGREAT! I should read your blog post earlier!!!
Anyway, it’s great to find one more excellent blog to read!
Comment by OPC — January 31, 2006 @ 8:47 pmyou nailed it!
patiently awaiting your next tip:-)
Comment by Zack — January 31, 2006 @ 8:57 pmGreat call, cha-ching!!!! (even if it was only a symbolic 10 shares)
Comment by sjgmoney — January 31, 2006 @ 9:22 pmnice short. good work. google lead in very few areas but one, and now that is crashing down. keep it up. bb
Comment by Ben Barren — February 1, 2006 @ 12:07 amGood call Amr! I wish I had read your site a week ago when I was telling everyone the same thing, then i might have acted instead of sitting still…
Comment by Dan — February 1, 2006 @ 11:25 amIt seems to me that you have an ulterior motive for google bashing, because you clearly have vested interest in yahoo, inc.
Not that people shouldn’t be wary, but really…a yahoo employee who doesn’t understand the difference between “is” and “are” probably should keep their opinions concerning the quality of new google employees a little more private until they have a better grasp of English grammar.
Comment by yttrx stein — February 1, 2006 @ 12:40 pmThere is a great article commending this blog at http://www.ebizmark.com/unfiltered-search-press.html
Comment by Shawn — February 1, 2006 @ 5:47 pmHi Amr, I found your blog following Jeremy’s post and must say that you have put forward an excellent analysis. Good to see you featured on CNN Money as well. Keep up the good work and please do make this a quarterly feature.
Frank
Comment by Frank Mash — February 2, 2006 @ 7:09 pmHi yttrx stein ….
UMMmm?? How petty!!
Comment by LookingConfident — February 3, 2006 @ 12:51 amyou have got to be kidding. when i tried to find what was the reason google fell, the issue has been linked to this blog. there are tons of news sites that are linking to this blog before it fell. all are saying that the google is about to fall because one person estimates that it is. (and he has proof)
great way to decrease the price of google. just watch it rise now.
Comment by nas hashmi — February 4, 2006 @ 8:53 am90 million users in Yahoo Groups. 2 billion minutes/month on Yahoo games. 250 million Yahoo Mail users, supposedly largest in world. 2 billion images on Yahoo photos. We always thought the Internet was never about one killer app. Yet Yahoo can’t generate enough revenues
Comment by patil — February 17, 2006 @ 10:42 amKeep an eye on the “Big Daddy” update that googleguy keeps talking about, past updates have always created meltdowns in the adwords system. Want more revenue, just turn the SERPs upside down and you have a new batch of advertisers.
Someday, one will come up with a bona fide search engine, for now we settle for ad delivery posing as a relevant search tool.
Comment by hardball — March 15, 2006 @ 12:20 pmWell as of today google is getting bigger and bigger
Comment by Macnerdzcare — December 9, 2007 @ 2:11 amwith adsense and adwords