Tale of Two Headlines

Posted: October 21, 2005 in Uncategorized
Headlines do fool people.
Take Yahoo’s (YHOO) earning announcement on Tues (Oct 18).  Most of the headlines were:
     Yahoo Earnings Flat
YHOO was actually down after that headline… and rose only modestly in the after hours market.
Take Google’s (GOOG) earning announcement on Thur (Oct 20):  Headlines screamed:
     Google Net Surges Sevenfold
GOOG was up a whopping $25-$30 or so (about 8-10%) in the after hours market.
Now, I’m a fan of both YHOO and GOOG (and MSN and AOL) since I think the online advertising market will explode the rest of the decade.
But, I have to take a moment to dissect both headlines.
YHOO is being compared against a quarter that included a huge stock gain.  Take the stock gain out of the equation to get the real operating performance — which analysts and reporters are supposed to be smart enough to know — and the results look stunningly different:
     YHOO:  100% earnings growth (8 cents vs. 16 cents).
A far cry from flat.
GOOG is being compared against a quarter that included a huge stock payout.  Add that back into the equation to get the real operating performance — which again analysts and reporters are supposed to be smart enough to know — and the results also look stunningly differently:
     GOOG:  50% earnings growth ($253 million vs. $381 million).
A far cry from 7x.
My point:  Headlines do matter in the short run.  Especially the wrong ones.
P.S.  Both YHOO and GOOG beat analyst’s earning and revenue estimates.
P.P.S.  The market somewhat corrected itself the next day, sending YHOO shares up about 6.5%.  But I wonder how much higher they could have soared had the headlines been — deservedly — as wildly positively as Google’s?
P.P.P.S.  Long run the marketing is always right.  Overall GOOG is outperforming YHOO because GOOG is growing its revenues twice as fast as YHOO and that will eventually show up in earnings.
P.P.P.P.S.  Let’s not forget, though, both companies are doing phenomenally well… absolutely running circles around the rest of the market.
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