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Alphabet Inc. Message Board

  • metallicvessel metallicvessel Sep 27, 2007 1:04 PM Flag

    Google Is Cooking Their Books (Understanding How GOOG Is The Next Enron)

    When Google sees that their earnings aren't going to meet the analysts' projections, they boost the numbers by giving more credit to certain AdWords customers, who buy more AdWords with the credit. Google then books that credit as revenue.

    Of course, the credit they've extended to these certain AdWords partners isn't going to be paid back, but for now, Google gets to pump up their earnings while carrying the credit they've extend on their books as a receivable. (Google's receivables is approaching $2 billion.)

    This receivables juggle one of the oldest accounting "tricks" in the book. Give "easy credit terms" to your customers and record the sales you make to boost your earnings and hope your shareholders don't pay attention to the growing receivables numbers.

    This sort of receivables accounting maneuver is particularly easy for a company like Google to carry out since they have little to no extra costs in making extra advertising space (unlike a company producing a physical product who would have to be paying their suppliers).

    Of course, this "fraud" always "blows up" -- the outside auditors (in GOOG's case, Ernst & Young) will force them to write down the receivables at some point. If your customers don't actually pay you within a certain period of time (it varies by industry) you eventually have to consider that you're not going to collect the money owed to you and subsequently you need take it off your books.

    I suspect CFO Reyes knows this "forced write-down" is coming so he's put his exit strategy in place. (GOOG will probably "promote from within" when they announce a new CFO -- they simply cannot risk bringing an outsider in on the accounting scam.)

    Google might try to use the "mortgage melt-down" as an excuse to reduce the "book-cooking" and give lower revenue numbers next month, but I think there is still too much money the insiders want to get out before the implosion. I think they'll keep the earnings "pumped" through the end of this year -- but keep an eye on that receivables number when 3rd quarter earnings are released in October.

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    • Instead of broadcasting here.... take your info to CNBC where it really matters. Give yourself the big credit it deserves. Noy only that send your posts to the Securities and exchange commission.

    • I sent Google IR your message about cooking the books.
      I will let you know what the response is that I receive.

      Best regards

    • Obviously, you have no idea what is going on within Google's accounting area...PERIOD.

      This is completely and utterly speculation on your part.

      What is YOUR motive here? Obviously you must be short selling with GOOG.

      • 1 Reply to repsell2001
      • Just one question, when was the last time GOOG missed 2 periods in a row in the face of economic and worldwide growth? NEVER!

        In addition, the reason they 'missed' earnings in their slowest quarter was due to a 1 time charge for employee compensation which they accrued for both Q1 and Q2 due to a change in their accouting.

        GOOG to 620 by earnings based on options activity. Smart money knows before we do.

        Good luck, short term long to 750(by xmas).

    • No wonder GOOG looks tired. If you look back last three days, sounds like it has no where to go except down.

    • Metal, I am sorry to hear that you have lost lots of money with your PUT strategy. My advice to you is to wait until the stock goes past $750 before shorting. I can tell you this much, in the near-term this stock is poised to much higher. In fact, I can see a $20 to $30 before the earnings on Oct 18th.

      Good Luck

    • I'm a qualified accountant; equivalent of your CPA. As of June 30 GOOG receivables are $1.6B and revenue for the preceding 6 months are $7.5B so receivables represent about 5 weeks revenues; I also worked for Ernst & Young for 10 years as a senior audit manager; no-one is going to ask GOOG to write down receivables of 5 weeks trading; when the receivable reaches 3 months trading I would start to look as to why. GOOG receivable as a ratio of income has actually declined in the last 12 months from 6 weeks revenues to 5. Not saying don't short but not with this argument; I'm happily long from time to time.

      • 2 Replies to robert85849
      • >>>As of June 30 GOOG receivables are $1.6B and revenue for the preceding 6 months are $7.5B so receivables represent about 5 weeks revenues; I also worked for Ernst & Young for 10 years as a senior audit manager; no-one is going to ask GOOG to write down receivables of 5 weeks trading; when the receivable reaches 3 months trading I would start to look as to why.<<<

        First, I'll offer you a big THANK-YOU! (It is nice to have someone actually give a rational response rather than the usual "your [sic] a moron" replies as seen previously on this thread.)

        Specific to your points: Yes, at first glance Google's books look "reasonable," but you have to look into their business and billing system in more detail to understand how their numbers "don't add up."

        First, Google normally does not allow much credit to be extended to their customers. The average Adwords customer sets up an account where he pays Google virtually "at the point of sale." The normal situation is that a Google customer never has more than a $500 outstanding bill with them (that amount is lower for Google's smaller customers) -- Google automatically taps a credit card or bank account and collects what they are owed when the amount owed exceeds the pre-set limit.

        From Google's disclosures (particularly from the click fraud class action lawsuit last year) we can get estimates about the numbers of customers Google has. I won't go into all the numbers here, but if you start calculating, looking at their receivables numbers, and considering their billing system for the bulk of their customers, you realize the receivables number indicates they are extending some customers EXTREME amounts of credit (either that or they are "making up" revenue and hiding it in receivables).

        You also have to understand their business as it relates to TAC (traffic acquisition costs) and their AdSense partners. You've taken their Total Revenue number (for the first two quarters of this year) of $7.5 billion -- that is BEFORE TAC (which is pretty much what they account for under their "Cost of Revenue"). I would argue that Google's "Gross Profit" of $4.5 billion is more like the "Total Revenue" number in most other businesses (again this requires an understanding -- and estimation, since we do not know all the details about some of their AdSense partner contracts -- of Google's business model). Using GOOG's "Gross Profit" of $4.5 billion and looking at their Receivables of $1.7 billion (you used $1.6 billion for their 6 months receivables number) you're looking at a receivables that is questionable by your stated criteria.

        Google is very much a "black box" -- one has to make estimates when looking at certain aspects of their systems. When looking at their accounting, their receivables is inconsistent with their pay-as-you-go billing methods. To draw the conclusions I've made, I have to make assessments about the "character" of those running the company -- that involves general research looking at things like their relationships with their customers, the lawsuits they are/have been involved in, and even company officials' behaviors outside of the business. Looking at those items -- even running models giving extreme "benefit of doubt" in favor of the company -- I still keep coming back to the conclusion that there is deception in Google's books.

        I've been looking at corporate/stock market fraud for a long time (the first case I looked into in detail was ZZZZ Best); Google meets too many of the elements I've seen before in fraud -- I would never recommend that anyone go long on GOOG.

    • I don't know.. I'm not buying it. I don't think Google did anything illegal by using company names that are listed on the internet either. A word is just an identifier and if you want to be listed in a search engine directory you should complain to the king of search engines. Just because they are good at it I'm not going to be jealous of the founders because they have yatchs and I don't. If they didn't invent google the internet would not be very enjoyable. Your claim sounds concievable but with out any conrete figures I can't believe this. But you shouldn't use fraud although you did use it in quotes. :)

    • I've seen your type, you come on board and post your BS hoping to drive this stock down. Do you know what you doing is illegal. Prove it or go away.

      PS - I will forward your email to their legal council.

      • 1 Reply to onperm
      • >>>Do you know what you doing is illegal. Prove it or go away.

        PS - I will forward your email to their legal council.<<<

        Wow another "brilliant" Google investor! He thinks a message board post is "email"! LOL!

        Just think, a person who doesn't know the difference between a message board post and email thinks he knows how to invest in an internet search engine company (that's what Google is, in case you didn't know).

        (And you demonstrate that you know nothing about the law too, but I won't strain your little mind with any explanations about free speech.)

    • When do you expect GOOG to crash as a result of this scandal? When do your options expire?

      I know of a professor of economics that was very heavy in put options on futures for crude oil for expiration in October of 2005. He expected to retire filthy rich, but I don't think that happened.


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