Google vs. Yahoo: A confidence game

Buried inside the "infamous" Yahoo “Peanut Butter Manifesto” is a simple, but powerful, phrase signalling Yahoo is “more profitable than ever.” 

The “strong, clear and powerful message to our shareholders and Wall Street” that Yahoo put forth was not a positive one, however; Yahoo took to the Wall Street Journal to perpetuate its “painful public flogging.” 

WHY? Why does Yahoo dwell on negativity and self-depreciation? 

Susan Decker, CFO, Yahoo, began her Q3 results presentation saying: “We continued to experience strong growth in the third quarter” and concluded:

To sum up, as we complete our third quarter in 2006, while we initially expected more growth, I believe it is very important to note that we remain in a very strong financial position, experiencing double-digit top line growth, highly profitable margin levels, and a financial model that continues to convert 60% to 80% of OCF to free cash flow.

Terry Semel, Yahoo CEO, presented the same Q3 results to Wall Street, but his spin was of a more apologetic nature:

Let me begin by telling you that while we are very excited about a number of things happening at Yahoo!, I am not satisfied with our current financial performance and we intend to improve it.

Our results for the third quarter fell short of our initial expectations, and we are lowering our fourth quarter business outlook as well. To be clear, we are continuing to grow our business at a pace many companies would envy, and we continue to lead the industry in key measures of performance -- but that is really not good enough for us.

We are not exploiting our considerable strengths as well as we should be and we are committed to doing better.

Google CEO Eric Schmidt is a constant cheerleader for Google, no matter what. Schmidt’s favorite saying, “Don’t bet against the internet” really means “Don’t bet against Google” and Schmidt does all in his public power to ensure that no one does.

While Google’s financial performance to date can be easily touted by anyone, Schmidt manages to enthusiastically spin Google’s non-performance in areas critical to its future diversification and growth rates, as well.

Schmidt must disclose Google’s underwhelming diversification performance in its SEC filings. Form 10Q: November 8, 2006:

Revenues realized through the Google Publications Ads Program, our radio advertising efforts, Google Video and Google Checkout were not material in any of the periods presented.

In public, however, all is always good with Google, and always will be, as I put forth in “Google’s ‘1 percent’”:

Despite Google’s inability to diversify revenues to date, Schmidt is touting a seemingly innate destiny to achieve world wide information and advertising domination:

We are in the search business, so we need all of the information… ultimately our goal at Google is to have the strongest advertising network and all the world’s information, that’s part of our mission, Q2 2006 earnings conference call. 

If you think about it, all the world's information includes personal information…

We're thinking about using our advertising system and our targetability for every form of advertising, Search Engine Strategies Conference, August 2006.

When Google’s Schmidt “thinks,” the world, and especially Wall Street, listens. I report some of Schmidt’s Google confidence building thoughts shared with the investor community in “Google CEO Eric Schmidt on recession, competition: Google makes more money”:

May Conference Call

Google was asked “Is there risk that budget dollars might get pulled away from Google if your competition significantly improves their monetization?”

people are very concerned because in traditional industries, the arrival of new competitors is a zero-sum game. But in something as massive as the shift to targeted advertising, which is bigger than the web and bigger than the Internet itself, it’s so much of a larger space than the sum of the current online advertising industry, that we just don’t see it as a negative. We see it as either neutral or positive, and we get laughed at if we say it’s a net positive. But it probably is a net positive on a mathematical basis.

July Conference Call

Google was asked “With the economy potentially slowing down, how do you think that will affect search spending?”

when organizations are under stress, they focus on the best economics, because they don’t have as many opportunities, they have to be much more careful. We continue to believe that the Google advertising system is literally the best place to put your sales dollars. In a theoretical global recession such as what you were asking about, I’m sure that we would benefit by the fact that our performance is simply better than the other alternatives.

Is Google’s top cheerleader’s extreme confidence justified? TAKE THE POLL:  GOOG @ $510: Do you buy or sell?