The Biz of Coding

Google’s CFO George Reyes Stepping Down — Big Deal?

by Ujwal Tickoo on August 29th, 2007

Forbes updated that Google's CFO would retire. Why? Two theories are doing the rounds in the blogosphere:

1) Reyes is retiring at his peak *and* after working hard for 6 years at the iconic internet company. Timing couldnt have been better to take a break and chill. Believable.

2)  There might be some slow-down brewing up at Google and the next CFO might have a rougher ride. John Battelle subscribes to this viewpoint. In John's words "future for Google's new CFO is going to be rough: Think Microsoft after Windows had its initial run. Ho to keep the Street happy when it expects double digit growth every quarter. Ick." Possible. Lets see.

Q2 wasnt a blockbuster quarter for Google. Its revenue grew only 6% quarter over quarter — a number that surprised many. Om Malik did write a long uncomforable note "So Google Stumbles should anyone care?" on the lack of consistency in what was announced by the execs and what he (OM) read between the lines:

It was, in my experience, the most unsettling Google call in at least a couple of years…the revenue growth rate was disarmingly slow: 6% higher than its last quarter. That’s the lowest quarter-on-quarter revenue growth that Google has shown since it went public.

Google’s position on this trend centers on two points. First, it always said that, as it grew, it would at times see its margins decline…And also…apparently, a change in the bonus calculations caused some bonuses made in the first quarter to be shoved over into the second quarter…fair enough.

…I want to try and show why those two explanations don’t quite hold up this quarter. First, let’s look at the margins Google disclosed: The amount Google spent to cull in that 6% blip in revenue was equal to 28.5% of revenue. But a mere 3 months ago - when investors were cheering Google - it was 33.3% of revenue.

And that brings us to my main question for Google: If the company is powerful to scare eBay and corner Yahoo, why can’t it answer the most humble questions? So you overhired this quarter - is that so bad? Why fudge it with this bonus-accrual smoke?…Schmidt dishes up the usual platitudes about growth (and they seem a little more disconnected from reality than usual), while Page seems muted and Brin coughs out the nervous tic “and whatnot” six times in about 20 minutes.

It seems unlikely to me that Microsoft would dent Google in the short or mid term. I will not talk numbers but give 3 reasons why I believe the CFO exit is perhaps not so big a deal:

(1) Google=Search is not quite exactly Xerox=Photocopying.

(2) Doing a Windows or an IE over Apple and Netscape was a competitive game MS could work out on the windows desktop in an era when the Internet had not become so exactly central to *consumer* lifestyle. There were no Wikipedia, Digg, MySpace, Facebook, Flickr, Blogger, YouTube, iTunes, iPod, and iPhones also.

(3) Collective consumer learning (i.e. critical mass) has had enough time to mature. Search and Social Networks have become two new starting points to navigating the www along with Yahoo! like Portals. Microsoft isn't quite exactly a consumer internet company and online advertising is growing at a rapid pace (of which Google owns a Lions share). Even if MS in some improbable way equals Google on Search in 2-3 years – Social Networks and UGC are not controllable by MS on Windows. By that time Google should have figured out Video Advertising and its Legal headaches on YouTube. MS is facing diminishing returns to size as a company — that is a larger problem for MS.

About the compelling points made by Om — I would wait for Q3 & Q4 results while considering Q2 to be an outlier. For now it seems that George Reyes is taking a well timed break.

POSTED IN: Google