Google set to test financial forecasters’ accuracy
By Richard Waters in San Francisco
Published: January 29 2006 18:04 | Last updated: January 29 2006 18:04
  A stock market culture that rewards analysts for deliberately understating their forecasts is likely to contribute to more headline-grabbing news from Google when it unveils its latest quarterly earnings on Tuesday, according to Wall Street critics.
The search engine company's revenues have in the past beaten analysts' published estimates by an unprecedented 6-15 per cent each quarter, helping to fuel the meteoric rise of its stock from $85 when it went public in August 2004 to $433.49 at the end of last week. When Google reports earnings on Tuesday, some analysts are already saying that it has a good chance of beating their expectations again – an apparently illogical position that harks back to the dotcom boom, when "whisper numbers", or unofficial estimates, came to be more important than the lower, published forecasts. "It's a natural by-product, when you're cheer-leading for a stock, to under-set the estimates," said Glenn Tongue, a partner in T2 Partners, a hedge fund that says it does not have a position in the company's shares. "Basically, the game that is being played now is the same as the game in 1999.” "Street analysts tend to aim low, especially when they like a stock," said Henry Blodget, the former Merrill Lynch analyst who was barred from the securities industry after an investigation into some of his optimistic published comments on internet companies. Writing on his internet blog, www.internetoutsider.com, last week, he said Google’s shares could "tank" if revenues only reached the published estimates of $1.29bn. Safa Rashtchy, the Piper Jaffray analyst whose high share price predictions for Google have made him one of the company's most optimistic followers, said: "We don't want to be too aggressive trying to predict that they will outperform every quarter." One of the issues that made it difficult to predict Google's most recent earnings, he added, was the extent of the market share that most analysts expect the company to have picked up against rivals Yahoo and Microsoft. According to Mr Rashtchy's published guidance, Google's revenues are likely to top his own estimate of $1.34bn, or growth of 24 per cent compared with the preceding three months, with a growth rate as high as 30 per cent possible. Asked how he strikes the balance between caution and trying to catch the full extent of Google's growth, he added: "It's always a challenge you have – I don't have an easy answer." | 
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