January 31, 2006

Google Missed: I told you so :)

Posted in Category: Work — Amr Awadallah @ 8:31 pm | link | | comment (0)

First, I was pleasantly surprised to see that CNN Money quoted and linked to my blog (just a few hours before my prediction came true, I made this prediction about more than 2 weeks ago):

Rival trashes Google’s growth prospects

However, I was very upset by the wording they used in that title. My blog represents my personal views and do not reflect those of Yahoo what so ever, also I did not trash Google. Its misquotes like this that cause bloggers major problems and could potentially lead us to stop writing, so please be careful next time.

Now its time to gloat ūüôā Google earnings are out, their sequential gross revenue growth was 22%, which did not just miss the 30% that the bulls were predicting, but also barely met the lowest of the sequential growth estimates (which was around 23%).

To top it off, Google also increased and plans to increase its spending significantly. They hired 700 more folks in Q4, they doubled their sales and marketing spend (over 2004-Q4), and they said their expenses are likely to rise significantly as they invest in long term projects. So its really a double whammy from top and below.

That said, 22% sequential growth for a $1919M Q4 is still very impressive, but it missed the expectations and it certainly does not justify the $500 to $600 stock price targets that some analysts are setting. To put things in perspective, Microsoft with a marketcap of $300B did $11B in sales last quarter, that is almost double what Google made for the whole year, so how can Google get a marketcap of $150B (at $500 price target). I think Greenspan had a word for this, let me try to remember, ah, he called it “irrational exuberance”.

— amr

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January 26, 2006

So what exactly is Google going to miss ?

Posted in Category: Work — Amr Awadallah @ 6:01 pm | link | | comment (0)
I got a bunch of emails from folks asking me to clarify a bit on what exactly is Google going to miss ?  

My guesstimate for the Wallstreet “whisper” number is $2050M in gross revenues for Q4-2005, that would represent a 30% increase over Q3-2005 (the consensus official estimates are obviously less than this).

I reason that Google will miss that 30% sequential growth since their Q4 search PVs only grew by around 8% from Q3 (src: Comscore). That would mean that their RPS (Revenue Per Search) has to grow by 20%+ during Q4 to bridge the gap between 8% and 30%. I do not think is feasible without significant changes, e.g. more ads above the results, larger descriptions for the ads, or significant increase in CPCs.  

In 2004, Google search PVs grew by 14% from Q3 to Q4, and their revenues grew by 28%. So RPS just needed to bridge the gap between 14% and 28%, which is doable; given that they were making lots of monetization improvements at the time. However, its very hard for the RPS this year to close the gap between 8% natural search volume growth and the 30% anticipated by the bulls.

Anyway, on Tues Jan 31st all shall be revealed …

— amr¬†¬†

PS: Thanks to Ken Norton, Silicon Beat, Caterina Fake and John Battelle for the mentions …

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January 12, 2006

Google will miss 2005-Q4 quarter revenue estimates.

Posted in Category: Work — Amr Awadallah @ 8:52 pm | link | | comment (0)


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 ūüėČ

— 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.


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