Posted October 9, 2008 10:07 am by with 21 comments

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Yes, we’re facing tough economic times–a recession even–and, yes, Google’s going to feel the squeeze just like the rest of us. Still, it seems that some Wall Street analysts simply don’t understand what makes Google, Google.

Soleil-Media Metrics analyst Laura Martin cut her rating on Google to "Hold" from "Buy" and slashed her price target to $350 from $580…saying the company’s practice of giving 10 percent of profits to charity and giving employees one day a week to work on pet projects should end amid the current economic climate.

Those are two things that help define Google’s character. They are just some of the reasons why Google is great and we love ’em. Martin demonstrates exactly why Google was reluctant to become a publicly listed company and why it doesn’t provide any financial estimates–some analysts look at the cold, hard numbers and not the company culture behind them.

Martin’s absurd suggestions don’t end there…

…she highlighted another company practice she believes should end – "the confusing myriad of non-revenue producing Google-products in the marketplace."

If memory serves me correct, Google’s search engine wasn’t a revenue producing product out of the gate. She clearly doesn’t understand that Google innovates, and innovates often. Telling it to stop trying would be akin to telling VCs to stop investing in start-ups and for investors to simply keep their money under their mattress.

On second thoughts, if we all kept our money under the mattress, we wouldn’t have the need for out-of-touch Wall Street analysts–that might be some significant cost savings for Soleil-Media in these tough times. 😉

  • Wall street doesn’t understand Google? Who would have thought…

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  • What an excellent posting. It is so sad that some (luckily not all) Wall Street analysts cannot see beyond money.

    Google has embraced a number of corporate practices that simply define the personality of that history-making corporation. ‘Don’t be evil’ is more than just a catchphrase: it is a way of being and acting.

    Does Google at times fall short of those high ideals. They sure do. Don’t we all? And yet in many respects Google is a trendsetter of good corporate practice.

    I pray for the sake of Google and for the sake of us all that the Google triumvirate take no notice of those short-sighted and ill-conceived comments by Ms Martin.

  • If my numbers were correct, at 350, Google should have a PE of around 17 while IBM had a PE of around 14 (based on closing prices when I checked and estimated yearly earnings).

    While it’s still a bit higher than IBM, I also think Google, even (or especially in) a recession, will grow a lot faster than IBM. This means that their forward PE should look even more attractive.

    Yahoo has also consistently had a very high PE compared to Google and they’re not doing much on their end in terms of growth to warrant the high valuation.

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  • Not exactly surprising that Wall St people don’t understand tech companies but they should at least understand Google a bit better.

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  • Ha now the gourmet chef…if he goes away I think they should definitely increase the price to say $600 a share.

    How did this women become an analyst?

  • Dean

    C’mon people, you can’t possibly be surprised at this. I’ve commented on this before but to reiterate: Wall Street knows one thing – Numbers. Period. Given that, let’s look at Google the way they do.

    It’s all about quarterly results…gone are the days when you were allowed to think long term. Everything now is based on what you did THIS quarter and by God it better outperform last quarter. When you don’t, you are punished and in many cases forced to respond aggressively though cost reductions, layoffs, outsourcing, etc. Short term thinking yes, but that’s what Wall Street demands.

    In Google’s case, Wall Street would see the 20% rule as lost productivity. The 10% charity donation as non-productive uses of revenue, the myriad of non-revenue producing products as a lack of resource optimization and focus. Oh and the free lunches? It’s just a matter of time before they become “subsidized” – mark my word on that.

    Out of touch? Perhaps, but with the fame and fortune of a successful IPO comes the sober realization that you have handed over control to a 25 year old Wall Street Banker with a Wharton degree that knows a lot more about the cold hard numbers than he does warm fuzzy culture.

    Then again, all of this makes the market perform more efficiently and produce optimal results for the shareholders. I mean look how good a job their doing…er…ummm…nevermind.

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  • Wall street never understood much about innovation I think. They rather speculate and in these hard times I wouldn’t be surprised to see many people shorting the market and making things even worst. Anyway that’s out of the subject!

    Yes to google! That innovation machine that always brings new stuff to the market.

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  • The fact that this reporter did not put together that their free offerings are where they deliver a good amount of their add impressions shows a complete failure for due diligence as a reporter. But that’s nothing new. Reporters suck at reporting, it’s as sure as the sun rises these days.

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  • I tend to slow down, when a blog post title mentions google 🙂 . But I am not at all interested in WSJ, so this post is not for me.

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  • So finally Google is experiencing it as well!

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  • Google started feeling the crunch way before the banking industry went kerplunk. There were blogs and articles being written about the cutbacks over a month and a half ago.


    People need to be realistic everyone is feeling this and while Google isn’t going to fall ill they will need to shed some skin.

  • Haven’t we had enough of the Wall Street types? I hope that they read this post. My congratulations to you for an excellent post.

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  • Andy Beal, thanks for your insightful blog. I have a bit more to add to strengthen your argument.

    It turns out Google does have something to gain for releasing certain free products.

    Please take these two cases in mind: Google Chrome and Android. Google Chrome is Google’s attempt at raising the standards of web browsers. Android could probably be considered a web-centric phone.

    In the first case, if the average user’s experience is improved and they stay online for one minute longer a day on average, this is approximately 220,000,000 minutes a day in total (418 years). Google Adsense is Google’s #1 money maker. How many ads do you think will be served by Google in those 220 million minutes spent?

    In Android’s case, this is an attempt to increase the usage of the Internet using mobile phones. If users are inclined to use the Internet on their phones, this is another opportunity for Google to serve more ads to the above mentioned market and potentially some new customers who do not use or own a computer but do have a cell phone.

    Products that don’t immediately generate ad hits may generate trust in Google’s products and strengthen their name brand. A percentage of those users will be more willing to put Google ads on their website at a future time.

  • Well,If memory serves me correct, Google’s search engine wasn’t a revenue producing product out of the gate – Google owns the biggest money making adverts in the world ~ Adsense :p

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  • Google is a real machine… it owns something like 80% of the internet advertisement. I’m sure its stock will go up shortly.

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  • google is not so hard to understand…

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  • Marc28

    Google is hard to understand 😉 We’re in 2013, google always change and it’s not so easy to understand that it really want.