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Google makes nice with Wall Street

Two years after its IPO, the once-secretive search giant is finally on speaking terms with analysts.

When Google announced strong earnings last week, executives reached out to analysts in a way that, while not exactly revealing the inner workings of the company, at least showed a thawing of the search giant's often icy relationship with Wall Street.

After the traditional conference call with analysts on Thursday to discuss Google's second-quarter results, which beat Wall Street estimates, co-founder Sergey Brin participated in some of the one-on-one calls with analysts, something he'd never done before, a Google representative said.

Though that may sound like common practice for many companies, Google watchers say it's a big change from two years ago when the search king was casting itself as the reluctant darling of investors, snubbing a conventional IPO and declining to discuss its operations.

The company, they say, may finally be learning to play nice with the Wall Street analysts whose enthusiasm for Google has helped turn it into a $118 billion tech powerhouse.

"It is not as if they are spilling the family secrets today. It's just that it doesn't feel, perhaps, as combative as it once was--not by a long shot," said Derek Brown of Pacific Growth Equities. "Yesterday, you came away from the (earnings) call feeling like they offered a bit more insight into the business than perhaps you may have two years ago."

Google went public in August 2004, using an unusual, open-auction method of selling shares instead of the typical approach of letting institutional investors set the price and allocate shares. That, and Google's unapologetic stance toward Wall Street traditionalists, irked more than a few.

"Google's communication process was somewhat broken after the IPO, and they've fixed it," said Jordan Rohan, an analyst at RBC Capital Markets. "It's not the best in class, but over time they will continue to improve it. You could say their new communication plan is still in beta, maybe for some time."

Google investor relations director Kim Jabal acknowledged that the company's reticence in its early years as a public entity may have contributed to a reputation on Wall Street for being "arrogant."

"In the early days, the company was laser-focused on keeping the train on the track...keeping up with hyper-growth and running the business. We didn't spend a lot of time talking to investors," Jabal said. "As we grow, we are working on ways to carve out more time and attention for our investors, analysts and shareholders."

"The challenge," Jabal added, "is that investors and analysts want metrics that we don't feel comfortable sharing, for competitive reasons. We hope to be more transparent regarding our business model and strategies to help investors better understand the story."

Google executives have been trying to be more communicative with investors, analysts, the press, partners and governments, said spokesman Jon Murchinson. But at the same time, the company must find a balance between disclosure and spilling the beans to competitors, he added. The company has taken several concrete steps.

• Google recently hired Market Street Partners, an investment community consulting firm, to help it communicate with those in the Wall Street milieu, said Murchinson. The firm has been calling financial analysts and surveying them as to what they feel are the more important issues pertaining to the company.

• Executives are making more presentations at financial conferences, instead of limiting appearances to just one conference per quarter, analysts said.

• Google is disclosing more in its quarterly filings with the U.S. Securities and Exchange Commission, said Rohan. "They have started to break down capital expenditures by type and offer a breakout of how fast international markets are growing," he said. "That helps put the picture together."

• The company held a midquarter conference call in May, which analysts said was a first. "That was a step in the right direction," said Rohan. "The company was somewhat candid with its product development initiative, including refuting the thesis that they were developing a browser, and talking about Google Base."

"When a company first goes public, it kind of stumbles a few times before getting it right," Rohan said. "By the time it's a $120 billion (market cap) company, it has a responsibility to investors to become more transparent, and Google is responding to that."

Google isn't limiting its chattiness to the money folks. It's also behaving differently when it comes to product releases, analysts said. For example, when it unveiled the Google Checkout online payment processing system last month, executives explained why they think the product is significant to their business. That may not sound like a big deal, but "it was a point of discussion that I think may not have taken place two years ago," said Brown.

Google also is issuing news releases to announce new products, instead of revealing the news in its official blogs, "which is cute, but not standard," said Rohan.

And Google is being more open with Web site owners who rely on good rankings in the Google index to get traffic and revenue, said Danny Sullivan, editor of Search Engine Watch.

"They have done a lot in terms of trying to give Web site owners direct feedback," he said. They are disclosing top search terms, error messages when Google's spider fails to gather data and other statistics, as well as alerting sites when they have been banned, he said. "That is unprecedented," he added.

Granted, the bar for improvement was low for Google and it could still do better, Brown said. Yahoo, for example, releases 20 to 30 pages of details with its financial results, according to Safa Rashtchy of Piper Jaffray and other analysts. "Yahoo is probably one of the most transparent companies in the Internet universe," he said.

"They (Google) were and are extremely tight-lipped about everything going on in their business," Brown said. "For a company as large and dynamic and important to the entire Internet economy, there is so little known about them, it's amazing."

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