Thursday, April 17, 2008

Psychology of the Google Q1 2008 Call

Most notable recent analyst changes:
February 1st, Jeffries & Co downgraded from buy to hold.
January 29th, Canaccord Adams initiated coverage with a buy.
January 24th, Stanford Research downgraded from buy to hold.
So Canaccord Adams is more bullish than Jeffries & Co and Stanford Research. Our team will pay special attention to the exchanges between these analysts and Google's management. Keep in mind that analysts are human, and do not like to be wrong, therefore, sometimes their questions reflect their ratings - - another dynamic of interpreting conference calls.
- Quick note: Google was trading up over $69 to $518 seconds before the CC.
- Hope you enjoy the Psychology of this Google Call.

CC began at 4:35 PM ET with Krista, director of Investor Relations. Mentioned executives and read safe harbor statement.
2m CEO Eric Schmidt PhD, pleased with another strong quarter, positioned in 2008 and beyond, regardless of business environment. Eric's tone was extremely impressive.
4m many, many quality improvements in advertising, fewer adds, but better adds; DoubleClick (DCLK) mentioned as a huge strategic positive;
5m all pieces in place; partnerships and new models will lead to people spending more time online; many, many talented googlers on our team.
6m CFO George Reyes mentioned DCLK reflected in results from March 11th George read the results from the public press:
Employee reductions mentioned at DCLK, initially had 1,900 employees; no head count reductions outside U.S. though.
11m Goal is to develop three themes going forward: Search, Ads, and Maps
12m Sergey Brin co-founder excited about past quarter; highlighted search improvements in quarter, one improvement per day added, Japan new home page, Korean search now has a universal search, other countries doing better as well;
14m universal search since launched in the past year were able to double query search; deployed universal search in many countries;
15m Maps and street view mentioned; plugged; (Sergey spoke very eloquently, Professorial type of delivery in our opinion, very relaxed yet confident);
16m mobile launch in 40 languages, that's four-oh Sergey annunciated; YouTube mobile site launched, in past it was subset, now all videos available;
17m pleased with participation in mobile spectrum auction even though didn't win; the winners will be adopting the open concepts that will benefit Google; (we felt Sergey addressing this issue was very positive, since they didn't come away as direct winners, Verizon out bid them, but the Wall Street friendliness and credibility aspect scored huge points).
18m Larry Page co-founder sounded very nasally; demographic targeting launched; google analytics helps track customers;

19m YouTube VERY excited about; in video ads great adoption;

20m much better click through ads seen in video ads; very excited about DCLK;
21m huge opportunities with DCLK ahead;
22m sales force partnership is very excited, very, very excited
; honored to get Fortune's 5th best place to work

Question & Answer (Q/A) began at 23m

Analyst Ben from UBS Q: what are the key initiatives for DCLK, and CFO search? A: whole bunch of candidates for CFO, we are happy and proud George Reyes has stayed on, looking to maintain customer momentum that DCLK has enjoyed, over all goal is bringing more accountability and effectiveness to user experience, you will hear new product announcements in the coming months;
25m YouTube mentioned again; nature valley campaigned through YouTube, Forex, Toyota, World Economic Forum in Davos, Dunkin Donuts, Verisign
27m Justin Merrill Q: display model explanation A: visual sites like Orkut, no specific plans to announce to you today, making great progress on display and network as well; DCLK approval behind us, so you'll see the customer list grow substantially
29m Doug Lehman Q: 100 quality improvements you mentioned, and can you comment on not seeing any macro economic impact? A: we have not seen any macro economic impacts, we are well positioned if economics changed, targeted advertising does well in most scenarios; 100 improvements were in search quality not advertising; landing page quality improvements have been substantial; UK trademark policy restriction announced
34 Mark Citi Q: data points in mobile search, and paid clicks growth A: mobile I don't have hard stats in front of me, but mobile search in countries like Japan working very well, nothing to dissuade me it is worse than desk top search; you will see a greater volume in mobile usage; even though screens much smaller
37m very optimistic on quality in mobile
38m James Goldman Q: universal search in other countries, and seasonality A: I don't agree with seasonality, there are so many technology issues/adoption curves etc, etc; Q2 and Q3 are weaker quarters; universal search is a very big win for us; lots of foreign language YouTube videos and books; narrowly, there are things like Easter falling in Q1 for seasonality; broader question moving forward is dependent on market share
41m JP Morgan Q: monetization of social networks, and frequency of search volume per person? A: demographic targeting has been very successful, MySpace, YouTube, Orkut; optimistic we've made many improvements
44m Krista Thomas Weisel Q: UK and more color on Yahoo collaboration A: we are very excited to be participating on the test, we won't speculate beyond that; UK Q1 slow down in retail, but nothing significant to see one vertical market affecting/bleeding into another.
47 m macro economic explanation given, luxury goods, autos, finance/real estate; every foreclosure becomes a sale eventually; possible that our prices actually go up.
48 m Brian from Banc of America Q: China and new initiatives A: China is going well (call dropped).
52m Credit Suisse Q: clicks through of overlay, what are barriers on running ads on YouTube? A: we are focusing on working with YouTube management on the plumbing and streamlining and promotion, very comprehensive plan with specific mile stones, still early to make any judgment which ads are working better than others.
54m David Morgan Stanley Q: DCLK integration into Adsense, and Google add manager A: we are optimistic; DCLK advertisers will have Adsense platform; positive dynamics
57m Brian Bank of America Q: International and China A: good market share growth, believe China will continue to be a good market for us.
60m Mark Needham and Co Q: U.S. revenues, DCLK's contribution, is sequential growth far lower in the past? A: it's not macro economic, it's timing of deals; you have to be careful to look at year over year comparisons, we added a lot of large corporate partners to Adsense, that skewed the numbers
62m Eric said Google is now an international company, as witnessed by 51% of revenues in Q1; he went on to congratulate what sounded like Hamid for his London initiatives under taken last year; Eric Schmidt is stole the CC, very well spoken and confident executive.

First, Google is trading up over $75/share after the CC; do we need to say more? Please allow for some psychological insights we took away. This CC was a tag team event of many geniuses and muchly appreciated by many we're sure. Often times, a CC has one or perhaps two executives being involved, Google is different. Google had five executive managers involved in the Q/A and everyone was very prepared and minced no words. Eric was very forceful about the macro economic environment not affecting Google. He added that it may actually help its pricing, even in the foreclosure/mortgage mess at the 52m mark; we were impressed and happy for the bulls.

The analyst from Jeffries and Co, Youssef Squali, who downgraded shares, we assume just listening from afar with mouth wide open. We all make mistakes, but his downgrade looks completely wrong after this CC and a $75 up move in Google! Canaccord Adams analyst, Colin Gillis, initiated Google a buy on January 29th, and therefore his universe of stocks under coverage must be followed closely.

In conclusion, the CC was a tag team of five Google executive champions. DCLK was mentioned a lot, and annunciated with great excitement at least 5 times. YouTube explosion and the fact Google has surpassed the 50% revenue barrier outside U.S. bodes favorably in our opinion. We come away convinced the DCLK and Google synergies will get greater as time goes by; therefore, why don't our readers consider competitors like Valueclick (VCLK), currently fetching a measly $17? Perhaps they'll be the next ones bought on the cheap…

We hope you listened to our bullish conviction on the market yesterday. We are more confident that the worst economic fears have been laid to rest by Intel on Tuesday, and the Google juggernaut today. From all of us at the Psychology of the Call, happy trading ~

1 comment:

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