Google stock rises despite disappointing Wall Street

Google (GOOGL) has been struggling to win favor with investors lately, as the stock severely underperformed the market last year.

So when headlines hit Thursday night showing the search giant’s fourth quarter revenue and profits came in below Wall Street forecasts, the share price took another hit, immediately dropping over 4% in after-hours trading.

But as Google execs got on the phone with analysts, the share price reversed course, a trend that held through early trading on Friday, where Google was up 4%. How did CFO Patrick Pichette explain away the shortfalls and change investor perceptions to the tune of some $25 billion of market value?

The key was sprinkling in just enough detail about one-time issues and unusual items with a few nuggets on the strength in Google’s various, faster-growing businesses. While critics harp on Google’s overreliance on desktop computer search advertising, the company is diversifying via Android, YouTube and other less well-known units like AdMob and DoubleClick. Investors don’t have much confirmed detail about those businesses, but Pichette and chief business officer Omid Kordestani let slip a few facts.

Pichette started with the excuses, though, giving an overview of what he deemed a “quite noisy” set of results. The weakness of foreign currencies against the strong dollar trimmed a net $468 million from quarterly revenue of $18.1 billion, more than most analysts had anticipated. Google also had $300 million of  “unusual expenses” related real estate and employee compensation, lessening initial concerns about increasing operating expenses.

Nomura analyst Anthony DiClemente, one of the few who underestimated Google’s revenue, noted that most analysts failed to model the big foreign exchange hit properly. Most of that impacted sales in Google’s Play store, particularly from Japanese customers, he said. Google counts app store sales in its "other" revenue category which, at $1.95 billion for the quarter, was the biggest disappointment to analysts.

Among the more positive nuggets Google fed the crowd were a doubling of mobile revenue from YouTube and a doubling of ad buying activity via DoubleClick Brand Manager. The total amount of time people spent watching YouTube videos rose 50%, Kordestani said.

There was very little real detail revealed about any of the growth areas, however. Pichette turned back questions about critical topics such as ad pricing trends on mobile, the run rate of newer businesses, or the growth rate in search traffic in different markets. Analysts who asked about recent rumors of Google getting into the wireless business, its expiring deal with Apple (AAPL) to be the default search provider on the iPhone or buying a mobile payment network similarly got nothing.

Google won a behind-the-scenes battle last year with the Securities and Exchange Commission to keep undisclosed more details of its business, such as how much revenue it gets from ads on mobile devices versus traditional computers.

Amid the Google stock price reversal, the reaction of  big tech stocks to earnings this week should serve as a warning to investors who simply want to trade off the Wall Street analysts' expectations game.

Google seemingly disappointed but the stock rose. Facebook (FB), the biggest beneficiary of the shift to mobile advertising, handily beat expectations for revenue and earnings when it reported on Wednesday. But the stock has bounced up and down since, standing virtually unchanged on Friday morning from Wednesday’s closing price.

Sometimes, it pays to go beyond the headlines.