As if we needed any more convincing, BusinessWeek provided yet more evidence yesterday that the media’s obsession with short-term stock prices does not make any sense.
In its self-consciously pithy roundup, “The Business Week,” the magazine congratulated Hewlett-Packard (“HP Wows The Street”) for its quick turnaround in the year since CEO Mark Hurd took over for Carly Fiorina. “Crisp restructuring and smoother operations helped HP blow past Street expectations for its first quarter, posting 30 percent brawnier profits,” BusinessWeek wrote. “Hurd has also nabbed new talent and has segments such as laptops and photo printing gear steaming. The stock jumped nearly 4 percent in after-hours trading on Feb. 15.”
So HP is the new comeback kid, a mature and previously lumbering company that is again seeing solid results. Fine.
We would have no problem with this (aside from the silly use of “brawnier” instead of “higher”), except that in another item BusinessWeek made it clear that it believes the actual health of a company is irrelevant. All that matters is the stock price.
Under the headline “Google’s Swoon,” BusinessWeek informed us that “Bulging bank accounts in Silicon Valley look a mite slimmer because of sinking Google shares. After a torrid 2005, in which the search titan more than doubled to a peak of [$]475 on Jan. 11, the stock has plunged 28 percent, closing at [$]342 on Feb. 15. Investors changed their minds after weak fourth-quarter numbers made them look closely at Google’s dependence on search.”
What BusinessWeek conveniently did not disclose (besides that Barron’s earlier hatchet job was responsible for a significant portion of Google’s plunge earlier this week) is that those fourth-quarter numbers included (subscription required) earnings of $372 million, up 82 percent from the year before, and revenues of $1.92 billion, up 86 percent. What, exactly, makes those numbers “weak”?
Why is one company’s 82 percent increase in profits weak, while another company’s 30 percent increase is “brawny”?
Here’s our answer: Because in BusinessWeek‘s lower-Manhattan-centric worldview, Wall Street expectations are the name of the game. And the short-term traders seem, at the moment, to want Google to pick gold off trees, while they are grateful that HP is merely showing signs of life.
We don’t mean to be a Google cheerleader — a new piece on TheStreet.com arguing that Google is betraying its ideals, for example, makes some persuasive points. But instead of getting caught up in the expectations game, the press ought to be reporting that Google is a healthy, growing, and hugely profitable company.
That, after all, is the truth. You know, that thing we get paid to look for?
Edward B. Colby was a writer at CJR Daily.