“Beef is Ugly”…How Does the Internet Look?

“Beef is ugly.” So stated Richard Bond, CEO of Tyson Foods on yesterday’s earnings conference call. Or, rather, lack-of-earnings call, because Tyson both missed the estimates for the quarter and guided down the full year by half, which you don’t see very often, except at companies like Tyson that not only don’t control their input costs—beef and chicken—but don’t control their selling prices either.

Like its CEO Mr. Bond’s namesake when he gets caught in one of those shrinking elevators devised by whatever evil nemesis is seeking his doom, Tyson is being squeezed on all sides: a Midwestern U.S. drought cut the beef supply, raised beef costs and, well, sliced beef margins. Meanwhile, Asian-Flu scares hurt international poultry sales, causing the chicken side of the business to, er, lose altitude.

More interesting than the miscues of a nuts-and-bolts food processing company will be the earnings calls from both ends of the Internet spectrum: Overstock.com next Tuesday, and Google tonight.

Expectations for high-growth, high-margin, high-everything Google run very high, with all eyes focused on sequential net revenue growth.

Depending on the analyst talking, Wall Street expects a minimum of 22% sequential growth (more than most growth companies experience year-over-year) and as much as 30% sequential growth (way more than most growth companies experience year-over-year). “Pro-forma” earnings should be at least $1.75 a share—and probably closer to $2.00 to satisfy the hoards.

I have no idea what the numbers will look like when Google reports after the close, but we have some clues that add up to strong numbers—particularly the fast growth in eBay marketing costs (eBay is Google’s largest user) and the continued ramp-up in online marketing spend described on many conference calls in the last two weeks.

Indeed, if the Alexa.com numbers are to be believed, Google usage has continued to grow substantially—significantly outpacing Yahoo!

You can see this yourself: go to Alexa.com’s “Traffic Rankings” page, type in “google.com” and then type “yahoo.com” into the “Compare Sites” function. You will see the Google blue line crossing the Yahoo red line—at least for internet users utilizing the Alexa.com toolbar.

Whatever the outcome tonight, I doubt there is much of a short-term “play” in Google stock, because short-term option volatility has soared to absurd levels and will almost certainly collapse the minute the press release hits the tape. I’d be willing only to bet that Google put buyers and Google call owners see little profit, unless Google management misses huge or beats very large.

Expectations are not so high, however, for Overstock.com, following its pre-announcement of weaker-than-expected sales in the 60% range, along with negative cash flow and earnings—a sorry state of affairs for a company whose CEO once said, “You tell me when you want me to stop growing at 80 to 100% per year, and I’ll tell you when we can get profitable.”

Judging by the urgent emails I get each day (“Month-End Closeouts – Hurry, Time is Running Out!” reads today’s version) from Overstock, as well as the reach and page view graphs on Alexa.com, I wonder how sales currently look at “Earth’s Biggest Discounter™” or whatever the company is calling itself these days.

Although it’s unwise to read too much into one data point, I have found the Alexa.com data to be a decent directional indicator. And as of now, they indicate flattish-to-downish year-over-year reach and page views on Overstock.com—in contrast to, for example, what looks like a nearly 100% year-over-year increase at Buy.com. Spikes in Overstock.com usage appear to correlate (and I stress “appear to”) with changes in shipping fees.

Tyson will, no doubt, recover in time, thanks to the magic of market forces. I give Mr. Bond credit for one of the most direct statements about the state of his business on any conference call this season.

Would that other CEOs might adopt such a direct, no-frills approach.

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. Note: Last night Overstock issued the following statement: Overstock.com, Inc. (Nasdaq:OSTK – News) today announced that it is scheduled to release fourth quarter and full-year 2005 financial results before the market opens on Tuesday, February 7. An accompanying webcast and slide presentation are scheduled for 11:00 a.m. Eastern Time on Tuesday, February 7. Shareholder.com reported that the Overstock.com webcast was scheduled for January 31: that information was incorrect and should not have been published.