Here are the Two Reasons Investors Kicked Google Below the Belt
Google (NASDAQ:GOOG) increased gross revenue 27% year over year. Cash flow from operations was a mind-boggling $3.2 billion. But investors slashed Google’s share price a whopping 4.8% after-hours for two main reasons:
1) Buildings. As Google (NASDAQ:GOOG) continues to spread search, Android, and Youtube across the globe, they figured it’d be worth grabbing buildings in Dublin and Paris. Expensive? Yes. A waste of money? Way too early to tell — especially if they are paying themselves rent.
On the flip side, if Google starts buying buildings like the New York Times (NYSE:NYT) after gross revenues stop growing, then by all means sell, sell, sell.
2) One-time Raises. Last quarter Google (NASDAQ:GOOG) opened their wallet to give employees a one-time 10% salary raise. Although this is a bummer for shareholders, it’s also the only way Google stands a chance of retaining employees during a time when engineers in Silicon Valley are in higher demand than website developers in 1999. Also, the economy has improved drastically over the past year — and employees are looking to get rewarded as ad revenues have been rising.
There is no such thing as “Should” in investing. It all comes down to expectations and the bottom line. Given that Google (NASDAQ:GOOG) has a reputation for mismanaging costs when cash is flush, investors have good reason to tread carefully. We’ll see if Larry Page can break the habit. (Don’t Miss the details in “Google Earnings: Larry Page Rattles Investors“)