Nothing But Net by Mark Mahaney

Author:Mark Mahaney
Language: eng
Format: epub
Publisher: McGraw Hill LLC
Published: 2022-05-15T00:00:00+00:00

My GOOGL Call

So did I call GOOGL correctly as a stock? The answer is a Big No and a Big Yes. I authored the very first formal Wall Street research report on Google. It was called, “A Conventional Look at an Unconventional IPO,” and I wrote it the night that the Google S-1 dropped (April 29, 2004). At the time I was working at American Technology Research as its Internet analyst. Then I formally initiated coverage of Google the day after its IPO with a $110 price target (pre-split) and a Hold rating. I predicted that Google would be the “Beta King of ‘Net Stocks.’” What I meant was that Google shares would be highly volatile, even by the standards of a volatile Internet sector. Turns out I was right, though only in the sense that GOOGL shares were volatile up over the next three years . . . volatile up like a rocket ship.

Then, in perhaps the single greatest mistake of my analyst career, I downgraded Google to a Sell prior to its first EPS report. I thought the 50% rise in the shares of GOOG prior to that print was excessive, and I believed Yahoo! to be the better fundamental asset. In hindsight, my mistake was threefold. I overly fixated on a near-term price move (I tried to play the quarter), I became too wedded to a stock (I preferred YHOO because I knew the asset better), and I underappreciated the disruptive potential and market opportunity of Google.

I predicted that Google wouldn’t meet the lofty expectations of its first public quarter. Instead, on October 21, 2004, Google beat Street revenue estimates by more than 10% and Street EPS estimates by more than 20%. And GOOGL jumped 15% the next day, and kept rising for the balance of the year and well into 2005. In the meantime, I faced the wrath of Kudlow & Cramer, the most influential financial news TV show at the time. Because the night of Google’s first earnings report—about an hour after the Google EPS results had been released and the stock was soaring in the aftermarket—that show featured two guests, the GOOGL Bull (an analyst named Jordan Rohan) and the GOOGL Bear (me).

Larry Kudlow first introduced Rohan as his “old buddy, old pal” and asked him to explain how he had so brilliantly gotten the Buy GOOG call so right. Then Jim Cramer turned to me with the following intro: “So, Mark, as the analyst with the three-egg omelet on your face, what do you have to say for yourself?” That may not be verbatim, but it is pretty close. One doesn’t tend to forget moments like that. And what did I do? I had already mulled over what my response would be to a line of questioning I knew was coming. I knew I had to fess up. So I did. My words were to the effect, “Well, it’s clear this guy [me] needs to go the Analyst Woodshed . . .” The rest of the interview was something of a blur.

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