After Google’s first earnings call under new CEO Larry Page, we wrote a post arguing that Larry had done exactly the right thing by basically ignoring Wall Street.(Larry spent a couple of minutes on the call and then went off to do something more important.)
In general, we think that CEOs and companies spend way too much time obsessing about their stock prices and Wall Street, so it’s always refreshing to see a CEO who doesn’t play that game. We observed that Larry might be following the example of a couple of other super-successful CEOs who don’t play that game–Jeff Bezos of Amazon and Warren Buffett of Berkshire Hathaway.
Bezos and Buffett care deeply about the long-term quality and value of their companies, but they recognise that the short-term “how’s the quarter” obsessions of Wall Street often conflict with increasing long-term value. As a result, they often make decisions that are expensive and margin- or growth-destroying for this year or next, but increase the competitive barriers or long-term value of the companies.
Google is in a tough spot right now: Its core business, search, is maturing, and it has yet to develop a second major revenue stream. Google is also in a war with other huge competitors, including Apple, Microsoft, and Facebook. And it is likely that any big new businesses Google develops will have lower product margins than its spectacular search business, which Wall Street won’t like.
So Google is faced with a choice: maximise the profitability and growth of the core search business by cutting out everything else, or invest huge sums in other, lower-margin businesses that could potentially drive its next major growth wave.
New CEO Larry Page, it seems, is pursuing the latter strategy.
But when we wrote our post complimenting Larry for keeping Wall Street’s short-term concerns in perspective, we quickly heard from a couple of folks who saw it differently.
It wasn’t that Larry was focusing on “long-term value,” the writers said. It was that Larry just doesn’t give a crap about shareholders. In this way, one of the writers said, Larry is very different from Bezos and Buffett–and not in a way that will necessarily increase Google’s long-term value or make long-term shareholders (or short-term shareholders) happy.
We’ve included two of the notes we received below.
But before we get to them, we’d love hear from more of you who have insight into Larry and his likely plans for Google.
One of the problems, after all, is that, unlike Bezos and Buffett, Larry has never articulated what his long-term mission and vision for Google is. In the past, Larry has pursued pet projects like wind power and self-driving cars that have nothing to do with Google’s core business. And if Larry’s plan is to double-down on these pet projects (and others), Google could lose discipline and focus and become a complete train wreck.
So what do you think Larry’s planning to do with Google? Drop me a note at [email protected]. I’ll keep your identity confidential. (And, obviously, I invite Larry to drop me a note as well!)
Here are two responses we’ve already received. More to follow.
From an ex-Googler:
Thoughts on Google: Larry will miss earnings the next several quarters, and possibly for many years. He wants to get aggressive with the company. He and Sergey honestly believe that every employee they hire will result in greater revenue. Really. Also, he does not believe in Product people – he only believes in Engineers. Look for Google’s products to become even more nerd-centric. He is hiring aggressively and spending wildly.
My 1-year target on Google stock is mid-400s. Larry has so much money that he is disconnected from the rest of the world, and is not the least bit afraid of spending whatever he wants. He and sergey only have a couple more years before they have lost control of the company, and they want to make their mark.
That Google chart on your site that has analysts worried? That is exactly what Larry wants. Since every employee results in $1M more revenue, spending $522K per employee is still immensely profitable. Of course, they have no reason for the $1M/employee other than blind faith. In the past Eric kept the hiring in line with revenues.
From an investor:
I think you are wrong on the Larry Page post. Page doesn’t give a shit about Wall Street because he doesn’t give a shit about shareholders. Bezos is different. He is a student of Buffett and Graham and Dodd. He hails from the Street himself, and he and Bill Miller’s team have been talking about shareholder value for years. Years. Page couldn’t spell fiduciary duty and thinks of investors as a necessary evil. Huge difference.