Wall Street analysts deserve a “sell” rating

By Felix Salmon
January 21, 2011
Jennifer Saba makes an important point about milquetoast tech analysts today: faced with huge news about shake-ups in the CEO position at both Apple and Google, precisely zero analysts asked any questions on that subject during the companies' earnings calls.

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Jennifer Saba makes an important point about milquetoast tech analysts today: faced with huge news about shake-ups in the CEO position at both Apple and Google, precisely zero analysts asked any questions on that subject during the companies’ earnings calls.

In the case of Google, the company went out of its way to open itself up to such questions: it started its call with comments from Page, Schmidt, and Brin, all of whom talked explicitly about the changes, and then invited questions for them specifically before returning to old-fashioned earnings-call questions. The transcript, when you read it, is almost hilarious:

>>Patrick Pichette

Jay, if you don’t mind, what we will do is we will set up two sets of questions for this afternoon. We will just take a few questions now because we have Larry, Sergey and Eric, and so we will take a few questions. And then after that, we will close that section of the call, let them run back — go back to work, guys — and then we will take the regular call as we usually proceed. So, Jay, if I can ask you to give us the instructions to take a couple of questions for Eric, Larry and Sergey.


(Operator Instructions). James Mitchell, Goldman Sachs.

>>James Mitchell

Congratulations on the movements, and congratulations on the results. I guess one question I had just stemming from the results rather than from the movements perhaps is when I look at the investments in 111 8th Avenue in New York City, do you feel that Google is now at a point where in order to continue facilitating the growth of the Internet that there will be a land grab for desirable physical locations?

It’s sad but true: faced with an open invitation to ask Google’s troika anything he wanted about the leadership of the company, Goldman’s star tech analyst instead simply said “congratulations on the movements,” and moved swiftly on to a question about Google’s decision to buy rather than rent its New York office.

There’s no good reason for this kind of behavior. Analysts are happy asking tough questions on calls and in their reports: it’s not like they are or should be scared of annoying senior management. What’s more, Google clearly wanted and expected questions about the C-suite changes.

But Wall Street analysts are much happier with spreadsheets than they are with anything human, and faced with the opportunity to ask flesh-and-blood questions, they get squeamish and retreat to their quanty ivory towers.

Which is one more reason, if reason be needed, to treat everything coming out of Wall Street’s research shops as fundamentally incomplete.


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It is a little bit disingenuous to pin the problem on Wall St. analysts being much happier with their spreadsheets than talking to real people. The analysts know that having Larry Page outline his understanding of business fundamentals and drawing comparisons to Schmidt is the most dangerous part of the call. If someone asked Larry a Finance 101 question and he completely flubs it, the stock could drop 5-10% instantly. That is why all of the analysts with “buy” ratings filled up the phone queue and asked soft balls.

Posted by TurtleBay | Report as abusive

I’ve been wondering, what exactly is “buy side” vs. “sell side” on Wall Street?

Posted by TFF | Report as abusive

Excuse the cynicism, but isn’t this criticism akin to asking puppets to appear more life-like? Analyst “questions” are obviously designed to drive specific agendas. In this case, as the earlier comment demonstrates, both of these companies have to fit into “growth” storylines, because the market depends on them to lead tech higher.

Posted by MaggiesFarmboy | Report as abusive

I might read an analyst for his industry evaluation; I would never read an analyst for his buy/sell recommendation. Other than general observations on broad issues, I don’t trust any of these guys with my money.

I’m not sure on the degree of market Efficiency, which is an enormously complex question possibly beyond answer until much later in this century, but I’m sure that by the time I read any recommendation the market has had time to digest the information. Bargains take dis-equilibrium on a substantial scale.

Posted by ARJTurgot2 | Report as abusive