Thursday, April 16, 2009

About those Google earnings...

Google has just reported Q1 earnings. As usual, they beat estimates handily and the stock is rallying in the after market.

The actual numbers show up on my screen as follows:

Google First-Quarter EPS Ex-Items $5.16; Analyst Est. $4.95

Wow! they really beat the estimates. Great surprise. How come Google always manages to surprise the analysts?

I keep on reading and something catches my eye:

Net Income rose 8.9 percent to $1.42 billion, or $4.49 a share, from $1.31 billion, or $4.12, a year earlier

I have just checked a few headlines from 4/17/2008 (one year ago):

Google-GOOG reports Q1 EPS $4.84 vs. consensus of $4.52

Google beats by $0.32, beats on revs

So what was the report a year ago? $4.12 or $4.84? It coudln't be $4.12 because that would have been $0.30 below consensus. So I checked. They reported $4.12. In fact, according to Bloomberg, Google has not reported above the estimates since 2Q06.

So what gives? I suppose the analysts give their estimates in US GAAP and they cannot be bothered with anticipating the "ex-items" adjustment. I suppose 3 years is not enough time to realize that, given the sizable adjustments, their headline estimate is useless. By the way, Bloomberg lists 39 analysts covering the stock. The guys from Google of course are perfectly happy with their ability to handily beat estimates every quarter.

Google is a great company and they seem to be doing well in a very difficult economy. They are entitled to report whatever they want within the law.

The analysts, however, by now have had enough time to either adjust their estimates to account for the difference or to highlight the discrepancy that took me 5 minutes to explain. If they haven't done so is probably because it is not in their best interest.

caveat emptor.

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