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Comment by nraynaud | Hacker News Reader

I love the title. As far as I know, it's the forecast that missed the reality. When the weather is not as planned, it's the weather service that missed, not the sky. It was not an engagement form google.

It's incredible how twisted some vocabulary has become. What do they say when they forecast on agricultural prices and the actual weather influenced the production? corn production missed the forecast?

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Er, yes? "Corn yields fell short of forecasts" is a common phrasing. "Temperatures failed to reach record highs set in 19xx despite the longest heatwave since records began" is another type of thing you'll see.

that's just wonderful. I'm still debating between Wes Anderson/Bill Murray or Tim Burton/Johnny Depp to shoot a movie where those sentences would be uttered.

Maybe I'm just not made for this world.

The reason it is phrased this way is because when a company misses forecast this usually results in the selloff of stock. This is generally the primary focus of earnings report reporting: the direction of the stock price.

I think that is also one of the reasons why public corporations are so heavily influenced by Wall Street in their decisions, and why they strive to reach certain quarterly goals in order to "meet the forecasts". If it was reported more like "forecasts miss the revenue", I think companies would be under less pressure from Wall Street to perform "at least as well as the expectations" every quarter.

I'm not sure what the phrasing of the reporting has to do with anything. It's an effect not a cause. The pressure from Wall Street is due to, well, the pressure from Wall Street. If analysts on Wall Street form a consensus around a company's expected earnings, then the market will price in that consensus. If that consensus turns out to be wrong, the market will (in theory) adjust accordingly.

In other words, if analysts are (in retrospect) over-optimistic, the stock temporarily becomes mis-priced and expensive (relative to an unknowable reality at the time) until the earnings report. Usually these analysts' look to the company's guidance (edit: or in google's case, the lack thereof) in forming their valuation. Add it all up and it's hard to see how there is pressure on a company to beat expectations, since they have the ability to set conservative guidance and try to get analysts to come to a consensus that is in line with the numbers that actually come up. If the company is performing poorly, they either depress the stock price in advance (under promise, over deliver) or later (over promise, under deliver) but regardless of when this happens if you buy into the EMH the stock is always trading at the proper value, behavioral economics notwithstanding.

For an example of an exception to this rule, see AAPL which routinely beats estimates yet sells off. One theory is that there is such latent fear that Apple is losing its mojo, each earnings report is a reminder that their growth doesn't compare to the old days, so investors flee despite their return on capital being extremely competitive.

Google's probably under less pressure than many companies because the dual-class stock structure makes them immune to takeover attempts.

I think a lot of the problem is that the stock price has many spillover effects. Recruiting & retaining employees is much harder when the stock is in the toilet. There's less currency available for acquisitions. It slants everything the press says against the company.

There was another story on HN today about how Marc Andreesen was dying to fund something that disrupts the financial industry. This is probably a major reason why: they wield disproportionate power based on made-up numbers.

Ah poor Marc, he only deals in real numbers. Wall Street is what it is but generally you can tell them don't expect much growth in the next 4-5 years and they'll adjust their expectations and share price. Coca Cola has a very different PE from Amazon and Google for example.

Just classic marketing psychology, of the "stopped beating your wife yet?" variety. By pondering why Google missed the forecast you automagically dump the blame on Google instead of the shitty forecast.

Vocab is hardly more twisted now, though; journalism has always chosen its words deliberately.

"Uncooperative weather has farmers off to slow start getting nation's corn crop in the ground"

http://www.greenfieldreporter.com/view/story/f6b2f534d9ba40e...

Hunter S. Thompson at a low point of his life had to be headline editor for a business newspaper, I guess.

(the first paragraph is quite good, too)

I'm going to use this at work - operations missed analytics results. That way I never have to correct my work...

> As far as I know, it's the forecast that missed the reality.

I believe what you are inferring is a called "prediction", not a forecast.

> It's incredible how twisted some vocabulary has become.

Context is everything. Let me try to simplify the financial terminology:

A company forecasts it's key statistics based on the internal finance team (for revenues, they'll work with sales to validate this for example). The market dictates the price of the stock based on the growth potential of the company. Stock price is a reflection of a firms ability to both grow (revenues) and control growth (forecasting). In other words, as an investor, I'm more likely to buy stock that is both predictable (rather, that it's forecastable) and has growth. In this specific case the forecast was incorrect, and thus they are being penalized for it.

This is also why P/E ratios are so high for tech companies because their growth potential is generally seen as much high than non-tech. In other words they scale much faster than non tech.

Incorrect. It's not company (in this case, Google) that forecasts its own earnings/share. It's equity analysts from investment banks and the like.

And how do you suppose those analysts get their information?

In Google's case, they make up numbers based on any publicly-available estimates of Google's business drivers they can find - traffic, CPC, etc. Google doesn't provide earnings guidance.

Yeah, but at the end of the day it doesn't matter.

Stocks are priced based on the expectations of the company's future value. If the expectations were wrong, the price is wrong, and needs to be readjusted. It's not a matter of blame.

The forecast is not made in a vacuum. In fact, Google's management has a lot of input into the process through guidance. I understand that there is no explicit agreement from Google to hit the forecasted numbers, but from another perspective, the shareholders have put out goals, and Google missed them.

It's analogous to a salesman failing to meet his or her sales goals. You don't (typically) say that the sales manager missed the sales estimate. On the other hand, if the sales manager (or in this case the analyst and shareholders) DOES give Google an unreasonable goal, you have the option to bet against the poor analysis.

Google's letter to shareholders when they went public said that they would never give earnings guidance. Has that policy changed?

Edit: Various articles have suggested not:

http://www.marketwatch.com/story/google-investors-pay-the-pr...

http://www.mckinsey.com/insights/corporate_finance/the_misgu...

Well then they can only blame themselves if analysts have incorrect expectations.

revenue alone does not mean squat.

the problem is that while their revenue grew, their costs grew faster than their profit. can mean a lot of things of course, but most simple explanation is that it is becoming more and more expensive to grow, hurting bottom line.

see here for a chart: pic.twitter.com/yoHjCjq30B

not exactly what investors want to see.

> it's the forecast that missed the reality

Forecast is created by company employees, based on what they know and the company plans. It's not just sticking your thumb in the air and guessing what tomorrow will be. So yeah, that's called "missing the forecast", and it may be because your forecast was not accurate (too optimistic), or the company did not perform as well as expected (stuff happened that made it hard to meet objectives).

> Forecast is created by company employees, based on what they know and the company plans.

Forecasts are created by financial analysts working for big banks and brokerage firms, not Google employees.

Ultimately, they use financial analysts for the annual reports, but these analysts don't make numbers out of thin air, they are using the data generated by Google on their current activities and their own forecasters' expectations. Big banks analysts do not have access to as much company knowledge as the employees themselves.

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