Wall Street to Google: congratulations

What about Google's risk profile?


Google CEO Eric Schmidt received several “congratulations on the great quarter” from Wall Street analysts today during the company’s Second Quarter 2006 Earnings Conference Call.

Schmidt began the call declaring Google to be “very, very” happy with its strong quarter in a seasonally weak time.

Schmidt proclaimed it to be a “good day, good quarter” for Google.

The Wall Street analysts seemed to concur.

How could they not? Google reported:

revenues of $2.46 billion for the quarter ended June 30, 2006, an increase of 77% compared to the second quarter of 2005 and an increase of 9% compared to the first quarter of 2006…

GAAP net income for the second quarter was $721 million as compared to $592 million in the first quarter. Non-GAAP net income was $772 million, compared to $697 million in the first quarter.

As Wall Street analysis is forward looking, however, Google’s future prospects would seem to merit more detailed questioning, including questions on potential future risks facing Google.

Morningstar stock market research firm notes the importance of risk analysis in stock research. According to Morningstar:

Business Risk (Stocks)

A proprietary Morningstar data point, Morningstar analysts score companies based on the size of their economic moat, as well as an assessment of event risk, or the chance that a nonfinancial issue that could materially affect the company's fortunes. Based on these two factors, Morningstar classifies the company's level of business risk as speculative, above average, average, or below average.

Despite Google’s phenomenal success, it is not immune to risk.

Google has been the target of numerous lawsuits of late regarding diverse aspects of its business model.

Following Google’s investor Q & A last May I noted in “Google speak for Google investors”:

One seemingly requisite question was not posed by any questioner: What are you doing about click fraud in order to prevent click fraud liability?

During Yahoo’s earnings call Tuesday, Yahoo CEO Terry Semel addressed the issue of click fraud in his prepared remarks, as I discuss in “Yahoo CEO on click fraud: Yahoo ‘click protection system’ better”.

During Google's earnings call today, click fraud was not mentioned by anyone.