Wall Street may not like the quarterly results, but Google is still powering ahead

The struggle between short-term thinking and long-term investing continues

Yesterday after the market close, Google reported its Q1 results for 2014 which Derek Kessler nicely summarized already. While its clear that Google is growing the top line in a very healthy manner (19 percent year over year growth), Wall Street was disappointed and the stock is trading lower today. In my usual form, I’d like to touch on what I pulled out of Google’s quarterly conference call and how Wall Streets’ reaction fits into the picture.

Let’s take a quick look at the numbers. Google reported earnings of $6.27 per share on revenue of $15.4 billion. Analysts (on average) expected $6.40 per share on revenue of $15.52 billion, which means Google "missed" its earnings number by 2 percent and its revenue number by 0.8 percent.

The growth metrics are what really have Wall Street bothered. Revenue grew 19 percent, but earnings only grew 4.5 percent. When people see this they instantly worry that expenses are growing too fast compared to revenue. Because Google is involved in a ton of projects that are not directly connected to the main advertising business, the market is concerned that future growth will not be as profitable as the current business. Therefore future growth is worth less, and therefore the stock is worth less.

That’s the logic. Except that this “logic” is decided in nanoseconds after the press release hits the wire. Investors pounce all over a supposed earning “miss” without really thinking about the long term. That’s Wall Street for you. I suggest you ignore it and focus on long term investing. That’s what I do, and being a Google shareholder has served me well.

source: androidcentral