Larry Page and Wall Street: Who needs who? | Hacker News Reader

Larry Page and Wall Street: Who needs who?

reuters.com

53 pointsssclafani53 comments

This somewhat reminds me of a few articles I've read of Jim Sinegal (CEO of Costco). There's a particular good read here: http://www.fastcompany.com/magazine/130/thinking-outside-the...

Choice quote:

"the people in that business [wall street] are trying to make money between now and next Thursday. We're trying to build a company that's going to be here 50 and 60 years from now."

This makes me want to work at Google now.

"This makes me want to work at Google now." !!

I do to think this is the way!

Is there any way to parse this comment that makes sense? I suspect a typo but I can't figure out what it is.

Sounds like "I do too think this is the way!"

Why should Larry Page (a billionaire many times over) have to answer the questions of some loser $100K analysts? I commend Google for not estimating their earnings, offering "guidance", or any of the other bullshit that these analysts need to justify their useless jobs.

I'd like to upvote you twice. Warren Buffett has plenty to say about the unholy marriage of corporations and their analysts, consummated with garbage "earnings guidance". Yecch. The quality of the article was lame, at best: "News Flash: Wall Street analysts say people should really pay attention to them, or else."

This criticism seems unnecessarily harsh and focused on income.

There are real issues here regarding the role of a CEO in working with or talking to analysts and investors. You could make an argument that it serves Google's long-term interest to withhold this information from analysts and their shareholders. Or you could argue that Larry Page should answer to people who own part of his company. I'm not saying one is more right than the other, you just aren't contributing to the discussion by trashing someone based on their income.

This isn't about Larry Page vs some "loser $100k analysts" it's about the CEO of a major public tech company and their relationship with their investors.

I had to upvote and add to this comment to emphasize your point. I haven't looked through Google's SEC filings for what Larry's actual comments are, but he does need to remember that it's not "his" company anymore and he is partially a billionaire because Google went public (in exchange for getting public money and boosting the value of his own net worth, Google has been able to use that public funding for its continued growth). He likely would've been rich had Google not gone public, but it did and it'd be hard to argue against the positive boost it has given him.

He may not owe it to public investors to give bullshit earnings guidance, but he does owe it to them to answer their questions on how he intends on managing the company and transitively the investor's money.

The major shareholders of Google remain inside Google, especially when you consider voting shares.

Sorry but 81% of Google is owned by mutual funds & institutions. 1% is held by insiders

http://finance.yahoo.com/q/mh?s=GOOG+Major+Holders

This also underscores the fact that this is not Page's company and so while the Street's short-term thinking shouldn't influence him, he should provide shareholders a cogent articulation of his plan/vision.

Google has two classes of stock.

That's fine. But let's assume all 81% of institutions hold "less privileged" (likely non-voting) stock, it doesn't matter if they can't vote. They can vote with their checkbooks (allocate investments to other stocks) and that is bad for Google's stock price.

Your comment reminds me of how people set out a company to you know build a legacy, make some money, change the world, whatever. But then this MBA financials guy comes around and shows how with some book engineering you can get 5% more out of your company each year (by cutting costs for example) - and you agree with him. A year later you got 7% out and the company still stands. And then one says, this is good - lets keep doing this, final result - the company is gone 5years from now.

I'm not saying that cutting costs, trying to not pay the taxes and massage of investors is stupid and worthless. What I'm trying to say is that Entrepreneurs start out to build companies that do stuff. But sometimes they just get so much into intricacies of "little stuff that matters" that they forget the big picture.

So for each action (or at least each major action) an executive should ask himself, how does this make this company better at being a company that does stuff people want. And cliche answer - it will help it because shareholders will get more out of it in short term is one of the worst.

So can you please explain to me how lower stock price affects google's ability to do what it does?

The only thing I can think of is that with a flat or lowering stock price, employee options aren't going to be as attractive as they were which means that it will be more difficult to attract and retain the best staff.

Its not just that - if a firm needs financing stock price and its trend is of great importance for purpose of setting the interest rate and/or price of equity.

As far as staff goes - Google is well beyond the point where the stock options are the motivation for staff. Google's stock won't grow 100-1000x in next 10 years. It's impossible. Also working for Google today is not a risky activity anymore.

Today one would join Google: a) To experience the googly world and to leverage that experience in the future. b) To work with some of the best and brightest in the world and to use this experience as litmus benchmark for himself. c) To earn a competitive salary without much risk. d) To work on some project that the rest of the world is not aware of or deems to risky of an enterprise. e) To see how Larry & co. organized this miracle and to learn from it.

Google ain't the company it was anymore. It also never was anything like other "like" companies - Larry and Sergey made sure of it. And Larry & Sergey would IMHO rather run it into the ground than to make it another corporate monster like any other.

The pundits of course want to sell the story how Google will magically rise for 30% a year for some arcane reasons. What Larry did was refuse them alibi for such course of events. And this drop in stock price - I attribute to sell off from short term funds that were looking to cash in on Larry's take over - however they didn't analyze it enough to see what is coming.

Also regarding Google's opportunities. Google cannot grow on adsense anymore. If it wants to become an industry figure like IBM it will need to diversify (and that is exactly what it's doing for some time now). Google is not a marketing company. Or at least it doesn't want to be one. It wants to be a tech company - thats why it is betting massive stakes on green energy, robotic cars, artificial intelligence, etc...

Google's intentions seem clear to me - it is trying to become a GE, Bosch or Siemens of 21st century - and focus on quarterly results is not a way to go about it.

Unfortunately, when people give you money (aka investors), they have certain expectations and you have responsibilities to them. And Google needs the money that the public markets enables them to have to fund operations, hire, grow, innovate, etc.

Again, this doesn't mean Google should engage in short-term B.S. that Wall St trades in, but they will need to be accountable to shareholders in some fashion - probably through detailing their vision. And they can articulate that they're managing for the long-term which is a great and desirable thing. But just saying "give us money, we're really smart" is not going to cut it. That's part of the hassle of being a public company - you are answerable to others.

Emotional arguments about why MBA/finance guys are bad may get folks excited but the reality is that both parties need each other. Thinking they don't is myopic, naive or probably both.

I'm not arguing that MBA's are evil or something. I have just noticed that companies tend to overdo their financial engineering to a point where the company is a perfect financial machine but it is unable to produce anything worthwhile or innovate or whatever.

Entrepreneurs should treat finance as a tool not become a tool for the finance. What I mean is that sometimes you need to tell your accountant: Yes, what you propose makes sense from financial perspective - but it might severely cripple our vision and diminish our ability to reach our long term goals.

Nowadays to many treat finance as religion. And they don't even take a dump without their accountant.

If you are a stockholder in Google, the easy answer to this is that if you don't believe in this "long-term vision" barely articulated by Page then you are free to ask for your capital back (by selling your shares). As Page and Brin are still the majority holders of google's voting stock they can pretty much do whatever they want (although it might not be in their long-term interest).

The link you posted doesn't make any sense. It says Larry Page owns 115,000 shares, and Sergey Brin isn't even listed. They own tens of millions of shares of Google. I suspect the difference is owing to dual-class shares, and the 81% vs. 1% figures would change accordingly if you include them.

http://techcrunch.com/2010/01/22/google-co-founders-plan-sel...

"Larry and Sergey currently hold approximately 57.7 million shares of Class B common stock, which represents approximately 18% of Google’s outstanding capital stock and approximately 59% of the voting power of Google’s outstanding capital stock. Under the terms of these Rule 10b5-1 trading plans, and as a part of a five year diversification plan, Larry and Sergey each intend to sell approximately 5 million shares. If Larry and Sergey complete all the planned sales under these Rule 10b5-1 trading plans, they would continue to collectively own approximately 47.7 million shares, which would represent approximately 15% of Google’s outstanding capital stock and approximately 48% of the voting power of Google’s outstanding capital stock (assuming no other sales and conversions of Google capital stock occur)."

I have no opinion on Larry's actions on the call the other day. However, it is a fact that he, Sergey, and Eric, plus Marissa, Paul, and the rest of the insiders, still firmly control Google.

You are confused about the difference between equity shares and voting power.

he does owe it to them to answer their questions on how he intends on managing the company and transitively the investor's money.

I disagree. You chose to invest in a company based on your belief that it will grow as an asset. If you want to have guarantees of certain information beyond what the SEC requires, you need to enter into a separate contract with the corporation.

Page is a founder and CEO in good standing with the board. He doesn't owe shareholders squat.

That's all true except your very last sentence.

He doesn't owe shareholders squat.

That's an unnecessary hyperbolic statement that doesn't accomplish anything good.

It's because shareholders buy in that Google's share price doesn't totally collapse. If Page doesn't owe them squat, he's free to act irresponsibly and stupidly. Take all of Google's cash and go spend it buying up professional sports teams.

Fortunately, Page isn't that stupid and is working to build something big long-term. If he pulls it off, shareholders will be rewarded. If shareholders don't "get" his strategy right now, and Page thinks "whatever you guys, I'm doing what I need to do", that's no reason to state that Page "owes them squat." Page is still acting in the shareholder's long-term interest, whether shareholders agree with his strategy or not. But let's not say he "owes them squat."

Also, there is a long, demonstrable history of Wall Street analysts being flat-out liars. They've been caught pumping garbage that their own firms bet against so many times, one wonders why anyone listens to them at all.

Larry Page knows what he's doing. Wall Street is the only giant sucking sound.

How about because that 8% drop in stock price just collectively cost his thousands of employees a significant chunk of money? Larry may not care about the stock prices, but the people who work for him, for whom stock options are a major incentive, certainly do.

Hopefully those people are also in it for the long term and know that an 8% drop will mean nothing if the earnings and profit grow year-to-year.

Stock price only starts to matter when a company needs access to more cash than it can generate through sales.

Google is currently in a position where they cannot easily continue to increase sales by spending their (enormous) cash reserves.

Letting the stock tank a little now reduces the perceptual gap between stock valuation and actual earnings.

If that gap is not reduced stock continues to climb while sales growth remains stagnant with the result that, even when engineering investment starts to reflect in sales, unrealistic growth expectations becomes more and more difficult to maintain.

I wouldn't be surprised if Larry Page becomes more communicative when/if he can pull off a Steve Jobs and get Google's product development pipeline to the point where the company can reliably maintain sales growth.

Right now, boosting investor confidence can only work against him in the long run.

> Stock price only starts to matter when a company needs access to more cash

I used to think that too, but it's not true. Stock price matters for the existing shareholders, including founders and employees, who may need to cash out for personal reasons. The stock price is an instrument to align the interests of many.

   The stock price is an instrument to align the interests of many.

I like this definition very much.

Page may justifiably dislike Wall Street and their short-term orientation, but he probably does need to detail his vision for shareholders esp the long-term type of investor.

Because if that type of shareholder loses faith in the company's direction and Page's leadership and start voting by not buying Google's stock, that will have deleterious impacts. Most obviously, given the talent wars in the Valley, a dropping stock price will not help Google attract top talent vs. pre-IPO companies where the value of options and stock is uncertain and the upside seems and may be higher.

I disagree. First of all, share prices are always going to be tied to the fundamental values of a company to some extent. No matter how much an analyst hates a company, if it's generating 50 billion in profits each year, it's clearly worth a market cap of at least a few hundred billion. If Page is right, and is in the process of growing his company to that level over the next ten years, even an analyst who hated the company would be compelled to give it triple, more likely 5-6 times its current valuation.

Furthermore, since Google is highly profitable and has no need to ask the market for more investment, it's not beholden to short term share prices. If the stock price were brutally and irrationally hammered, the logical reaction would be to just spend some of their billions in cash to buy back outstanding shares at the irrationally low price. This would concentrate the ownership of all current share holders, thus giving them a both an immediate increase in value per share and an indefinitely larger chunk of whatever profit is being generated. One way or another, the either the valuation will be sufficiently close to reality or the company will just start paying a dividend of which none of the irrational sellers get any.

Obviously no established company can compete with the potential upside of a small company which is offering a large stake to early employees and just might make it huge. But a one time fluctuation to share price won't matter in the long run. Remember it's a linear adjustment and growth rates of investments are calculated by taking a geometric mean, not an arithmetic mean.

I think your comment on share buy backs is not steeped in reality. Moreoever, share price is not always tied to fundamental value of a company. For value stocks, it is. But for tech companies (growth stocks), it is often tied to implied or expected growth. And if Page can't articulate where that growth will come from, the stock price can get hurt.

Yes, but the GP's point was that Google's growth as a company is independent of it's stock price. I almost hope that Wall Street doesn't look favourably on Google for a while - it means that the stock will be a (relative) bargain (if Page is able to execute on his un-articulated long-term vision).

From the article's tone, it sounds like Wall St is miffed Larry doesn't need it as much as it would like.

I don't see how the vanity of a some analysts affects Google's underlying business. This is exactly the bipolar behavior of the market which has netted people like Buffett a fortune.

It's the good old hill-climbing: to get out from local optimum to a better condition you inevitably have to descend a bit before you get on the rise again.

Can't have put it better.

Of course, the obvious caveat is that you may or may not reach a better optimum with this approach.

it certainly sends a clear message to employees and other stockholders that Larry doesn't see it as important to keep the stock price up.

...in the short term.

I wonder what the odds are this is a planned suppression of their stock price.

I'd rather work for a company that cares more about making the best products they can, than pandering to Wall Street and investors.

I think it's fairly telling that the analysts appeared to treat the decline in stock price as a punitive measure, rather than offering any kind of explanation for why Page's silence means the company is worth less than it was last week.

Can someone give me a good reason why Google should care what Wall Street guys think and how much they value casino chips that Google gave them to play with?

Does google give employees options or just restricted stock?

It is a bit demoralizing to have your company's stock tank right after annual bonus options are priced.

Stock price down 8% in a single session based on short-term emotion and reaction?

Sounds like a good time to buy.

4 year olds on Wall Street.

The message from this article seems a little flawed. Your stock price doesn't go up because you pampered Wall Street analysts, treated them nicely, etc. Your price goes up when you earn billions of dollars more than people expected. It's all about the money, not what you say. Perform well, and investors will care little whether you insulted them.

And to be honest, the fact this matters.. what does this say about Wall Street???? It's just a game of impressing people, and not based on what really matters - which is profit?

It's really starting to look like Google has jumped the shark with making Larry CEO.

Google has serious strategic problems going forward, and it seems the best Larry can do is make 25% of employee bonuses tied to chasing Facebook and ignoring investor questions.

Making a rags to riches die hard engineer CEO of a multi-billion dollar corporation may seem like a cute idea, but this won't end well.

Can you justify your declarations?

No.

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