Google Watch

The latest knock on Google is a brewing controversy over GSU’s. GSU stands for Google Stock Units which, the company had contended, was not a stock option and therefore we don’t have to talk about them. GSUs promise to give employees stock at a future date, at a certain price. See, that’s not an option at all! So what, you may say. I’ll tell you so what! A new national FASB ruling effective Jan 1 is that all corporations must expense stock options in the quarter they are issued but since it doesn’t say anything about GSUs, Google had decided it didn’t apply to them. Now, under pressure, they finally talked about them in the Q4 report, but only in 1 tiny little paragraph. In the earnings release Google says: “Stock-Based Compensation – In the fourth quarter, the charge related to stock-based compensation was $58 million as compared to $46 million in the third quarter. ” “The increase in stock-based compensation was primarily related to Google stock units issued in 2005. Stock-based compensation in 2006 will be significantly greater than it was in 2005 as a result of our adoption of SFAS 123R effective January 1, 2006. We currently anticipate that dilution related to all equity grants to employees will be approximately 1% to 1.5% per year. ” (emphasis is mine, of course) http://investor.google.com/releases/2005Q4.html Dillution of 1% to 1.5% a year?!? Of a $100Bn company?!? That’s $1Bn to $1.5Bn of dilution!!! That’s a little more than $58M a quarter they are currently showing. Aside from the fact that they are diluting us 1.5% a year (kind of a reverse buyback), is Google telling us to expect hits of $250M-$400M per quarter to the bottom line? The bottom line is only $381M!!! Make no mistake about it, this is share printing on the level of the old .com bubble. In plain English it means Google has been shaving $1Bn in payroll expenses, bonuses, etc.. by giving everyone options and is getting caught with their pants down by the new accounting rules. Trade timing is also being called into question as the last quarter’s earnings were released a week later than generally expected (Q1 – 4/21. Q2 – 7/21, Q3 – 10/20, Q4 – 1/31). This is not generally a big deal except Reyes, the CEO sold 10,500 share between 1/20 and 1/26. This was Google’s first miss and the stock dropped $30 on earnings (and much more since) which can make a difference when you are selling $4.5M worth of stock! Martha went to jail over $47,000… I don’t even have the energy to dig into this but there is also a “Schmidt Family Living Trust” and “Schmidt Investment LP” on the insider list so who knows how much he really gets. Just so you don’t think that we are trying to take options away from Betty in the typing pool, please check out http://www.form4oracle.com/insider?cik=0001184217 and look how much “compensation” George gets as a “gift” pretty much every month. Remember, we talked about this before as it comes in 2 shots of 16,666 (the stock grant of the Devil!) for a nice $13M in MONTHLY bonus compensation. Just remember what CEO Eric Schmidt said in his Time Magazine interview (2/12): “The company isn’t run for the long-term value of our shareholders but for the long-term value of our end users.” I’m sure the end users find that very comforting!