When Talk Is Not Cheap

Google chief financial officer George Reyes received a lesson in how important the phrasing of responses can be. Also: a do-it-yourself CFO.
CFO StaffApril 1, 2006

In February, CFO George Reyes sent Google investors into a frenzy when he announced that the Internet giant would “have to find other ways to monetize the business.” The stock declined 7 percent in one day, erasing approximately $8 billion in market capitalization.

Analysts, surprised at the sell-off, say Reyes’s remarks were old news. “His comments largely reflected estimates that many analysts already have,” says Martin Pyykkonen, managing director at Hoefer & Arnett Inc. in Colorado. Troy Mastin, an analyst at William Blair & Co., agrees. He says Reyes likely did not think his statements would have such a high shock value. “It was a lesson in how important phrasing a response can be.”

The remark came during a Merrill Lynch conference on Internet advertising, information, and education. No doubt investors were already scrutinizing every word from Google managers. Since its peak in January, Google has lost $32.2 billion in market capital. Moreover, Google investors are prone to overreaction, says Pyykkonen, because the company doesn’t give guidance on financials. “It just goes to show how sensitive the market is to news flow,” adds Mastin.

Some analysts say it was also indicative of Google’s struggles to deliver a consistent message. “It raises obvious questions and concerns about the company’s ability to establish and preserve clear, consistent communication with the Street…,” wrote Derek Brown, an analyst with Pacific Growth Equities LLC. The day of the conference, Google released a statement to “clarify” Reyes’s remarks and reassure investors that “monetization improvements will continue to be a key factor in driving future revenue growth.”

This isn’t the first time Reyes has made investors anxious. In 2004, when the CFO noted that “click fraud” could be the company’s biggest enemy, investors flinched. And last September, when Reyes voiced concern over possible weaknesses in the quarter, market watchers wondered if he sought to lower expectations. Certainly investors will be watching Google’s next earnings release for hints of whether Reyes’s cautious tone is an attempt to lower the bar, or a real cause for concern. — Laura DeMars

The Bean Counter

CR Lawn is a do-it-yourself CFO. Although Fedco Seeds Inc., a seed and gardening supply cooperative he founded in Maine in 1978, has flourished into a $2 million business, he still prepares the financial statements and tax returns himself.

“We have a tradition of doing as much as we can in-house,” says Lawn. “If we need carpentry done, we have someone handy enough to do it. When we needed a Website, some smart folks figured out how to build it.” As for accounting, the 59-year-old says he taught himself the basics. “I have a head for numbers,” says Lawn, who holds a law degree from Yale University.

A gardening enthusiast, Lawn worked at the Maine Federation of Cooperatives, which ran a bulk-food distribution center in the 1970s, and realized the co-op concept could be extended to seeds. “From there, it just kind of took off,” says Lawn, whose company specializes in hard-to-find varieties of vegetable, flower, and tree seeds. This year, he expects Fedco to hit revenues of $2.2 million.

Lawn says he loves doing financial statements and would hate to turn the task over to a full-time CFO. But taxes are another story. “Nobody could love doing taxes,” he says. In all his finance activities, however, Lawn has one overriding philosophy. “People are thirsting for honesty,” he says. “If you can be honest, you can be successful.” — Joseph McCafferty