Google Drops $80 in After Hours Trading

The headline numbers at Google (GOOG) were $1.29B in sales and $1.54 EPS, versus expectations of $1.29B and $1.76. The stock just opened down $80 to $350 in the extended hours session. The reason for the EPS miss was a higher tax rate (41.8%) than what most people expected (26%-30%). Had the rate been in-line with estimates, EPS would have beat consensus by a few cents. The company said it expects a 30% tax rate in 2006, so it could be a one-time hiccup and not that big of a deal. I am going long a little stock into the conference call, thinking that the initial reaction might be too violent to the downside after we hear what they have to say. It should be interesting.

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3 Thoughts on “Google Drops $80 in After Hours Trading

  1. NO DooDahs on January 31, 2006 at 3:32 PM said:

    Um, remember that post on Whole Foods from a while back, where I commented on what would happen to GOOG when it missed?

  2. Chad Brand on January 31, 2006 at 3:45 PM said:

    Yes, but was it really that enlightening to predict that the stock would get crushed if they missed numbers? Doesn’t every high multiple stock gets hit hard after a quarter that doesn’t match lofty expectations?

    By the way, congrats if you are still short it.

    There is no doubt the risk profile increased as GOOG shares rose to $400 and $450, hence I have been selling in recent months.

    The issue tonight I think is, how much does a tax rate related miss really affect how Wall Street views the company’s growth prospects.

    If the entire miss was due to taxes, and taxes will come back down, should the stock have gone from $430 to $350 late this afternoon? That is the question we should be asking, in my opinion.

  3. NO DooDahs on January 31, 2006 at 10:54 PM said:

    Check my blog for GOOG post from morning of 1/31. Sentiment had clearly turned in December.

    Suggesting that GOOG would tank utterly at the first stumble seemed to be quite a provacative post at the time. It did provoke quite a reaction.

    High PE magnifies things. In the light of perfect expectations, one sees things … differently. If you were on a date with a supermodel and noticed cellulite, you might look at differently than noticing cellulite on the pretty girl at Wal Mart. The same issue of the same magnitude on a 20 PE stock is no big deal, but for the supermodel, it just ruins the fantasy of perfection, doesn’t it?

    IMO the stock should never have been that high in the first place, and this is a return to reality. So it’s not really an unrealistic reaction to the earnings miss, it’s an awakening to the unrealistic nature of the preceding mania. My two cents.

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