If we are being honest companies have near zero visibility into the short-term despite sell-side analysts’ attempts to generate positive spin. We use last night’s Google earnings call as an example.
- Google’s Ad business deteriorated over the course of the March quarter from a year-over-year growth position to a “mid-teens” percentage Y-O-Y decline by the end of the quarter. Google like most companies was unwilling to provide detail about the current level of sales activity in its Ad business.
- What struck us most on the Google/Alphabet (tkr: GOOG) earnings call was the following:
- The sell-side desperately wants companies to say their business has started to recover (Google and other Technology firms are not yet willing to make that claim);
- Sell-side has completely ignored those companies that have permanently closed their doors for business or that have suffered 20-75% headcount reductions. Presumably some of those companies were and are no longer Google customers. They are not laying dormant somewhere waiting to be reactivated nor are they coiled in their starting blocks waiting for the starter pistol to fire. That void needs to be filled from elsewhere.
We are big Google fans over the long-term. We hold the company in our CEORater mock portfolio. We love the recent addition of long-time payments entrepreneur and former PayPal (tkr: PYPL), COO Bill Ready to lead Google Commerce. However, let’s not rush the process. The macro economy first needs to rebound in order for Google and others to return to growth and justify valuations that have run up over the past few weeks.