Friday, March 03, 2006

Google Tries to Reassure Wall Street

Google shares may have fallen toward earth in recent weeks, but its executives still think that the sky's the limit for the company's growth opportunities.

With the share price down 20 percent from its high this year and investors increasingly skittish, Google offered a detailed and sober appraisal yesterday of its finances and strategy, a presentation meant to reassure investors that as a rapidly growing company, it still saw boundless opportunities to expand its Internet services and advertising network.

The meeting, in Mountain View, Calif., Google's headquarters, was a sharp contrast to 2005's gathering, which investors found frivolous and lacking in substance.

Last year, instead of hearing from Google's chief financial officer, analysts were treated to a presentation by the company's chief cook, Charlie Ayers, on the lunch menu for the meeting.
This year, the chief financial officer, George Reyes, was the master of ceremonies. Dressed in black, he gave a long recitation of Google's past results, as finance chiefs customarily do at such events.

Jordan Rohan, an analyst with RBC Capital Markets, said that Google's presentations were more polished and professional this year and that executives addressed the questions most in the minds of investors.

"The company appears to have matured significantly since its first analyst day a year ago," Mr. Rohan said.

"Investors have been successful," Mr. Rohan said, "in communicating with the management they can't be this funky renegade company."

Keeping to Google's stated policy, neither Mr. Reyes nor any other executive offered specific financial predictions or other quantitative insight into the company.

But Eric E. Schmidt, the chief executive, quickly sought to counteract the impression that Mr. Reyes had given investors on Tuesday implying that some of Google's opportunity revenue growth might be slowing.

The company's shares rose as Mr. Schmidt began to speak, and they closed at $376.45, up 3.2 percent.

Mr. Schmidt defined Google's opportunity as increasing its share of the worldwide market for advertising of all types, not just online, which he estimated to be $600 billion to $800 billion.
The company's advertisers "don't want to be just on text ads and just on Google," he said. "They want to be everywhere on all sorts of media."

Google has started selling advertisements in print publications and has bought a company that sells radio ads. And it said that it hoped to find a way to sell television ads as well.
Mr. Schmidt teased the audience with what might be an audacious goal: "building the systems and infrastructure of a global $100 billion company."

Then he added, "I'll give you the choice of whether that is $100 billion in market cap or revenue."

Since Google's market capitalization is already $111 billion, Mark Stahlman, an analyst with Caris & Company, said he took that to mean $100 billion in revenue. That is perhaps a bit of a stretch for a company that had revenue of $6 billion last year. (Mr. Stahlman, who is especially bullish on Google's stock, predicts that it could reach that level in five years.)

While Google executives seemed to take the analysts more seriously this year, they remained dismissive of competition from Microsoft and others.

Marissa Meyer, vice president for product management, disputed claims by Yahoo and Microsoft that the results from their search engines were as relevant as Google's.

Ms. Meyer listed several new technologies, including one that corrects for what seem to be mistakes in search queries. If someone searches for "CBS Alias," the system will now guess that they might be looking for information about the television program that is actually broadcast by ABC, and it will show results for the query "ABC Alias" as well as what the user asked for.

"We think the gap with the competition is as large as it has been," Ms. Meyer said.

Alan Eustace, the vice president for research and systems engineering, asserted that Google's worldwide computer network was much more powerful and efficient than any other Internet company's.

"We don't think our competitors can deploy systems cheaper, faster or at scale," he said. "That will give us a two-, three-, five-year lead."

Mr. Reyes tried to assure investors that Google was more than a bunch of unsupervised engineers playing volleyball and riding around on scooters. He detailed a strategic planning process that the company follows and listed financial measurements it monitors, like the average revenue it receives for each search. But he warned the analysts not to ask for specifics on any of those figures.

"We do follow and closely monitor these metrics," he said, "but we are not prepared to share them with you at this point in time."

Mr. Reyes took pains to indicate that growth was not slowing as much as some investors feared, underlining rapid worldwide expansion.

"The question I get asked a lot is, 'Is international expansion slowing?' " he said. "The answer is no."

Mr. Schmidt also talked about Google's payment system, which it recently introduced.
He reiterated that it was not meant to allow one person to transfer money to another, in competition with PayPal, part of eBay, which has been Google's largest single advertiser. Rather, he hopes that it will allow advertisers on Google to let users click and buy products right from the ads.

Mr. Stahlman, the analyst, said that in the informal conversations, Google executives were unusually forthcoming. In particular, he noted that the second half of the presentation was delayed 30 minutes because a crowd of investors surrounded Mr. Schmidt. "Eric was answering everyone's questions," he said.

When asked about the Google's biggest single opportunity, Mr. Stahlman said Mr. Schmidt cited advertising on cellphones.

"They had much more meat than they ever offered before," he said of the meeting.

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