Leaked Google earnings fall short; stock plunges

Google stock plunged about 9 per cent after the search-engine giant unexpectedly released its earnings report early. The company posted earnings of $9.03 a share on revenue of US$11.5 billion, missing expectations for US$10.65 a share on sales of US$11.86 billion. The company was scheduled to post after the closing bell.

Google CEO Larry Page.
(Credit: CNET)

Trading of the stock was halted after the release of Google's third-quarter earnings, which was inadvertent. One section of the report contains a place for a "pending Larry quote", referring to Google CEO Larry Page. Google blamed the inadvertent early release on its financial printer, RR Donnelley, and said it would re-file its earnings.

"Earlier this morning, RR Donnelley, the financial printer, informed us that they had filed our draft 8K earnings statement without authorisation," a Google spokesperson told CNET in an email. "We have ceased trading on NASDAQ while we work to finalise the document. Once it's finalised, we will release our earnings, resume trading on NASDAQ, and hold our earnings call, as normal, at 1.30pm Pacific Time [7.30am AEDT 19 October]."

Google later officially released its earnings, complete with Page's quote: "We had a strong quarter. Revenue was up 45 per cent year-on-year, and, at just fourteen years old, we cleared our first US$14 billion revenue quarter. I am also really excited about the progress we're making, creating a beautifully simple, intuitive Google experience across all devices."

CNET covered Google's official earnings conference call that CEO Page also attended. The Twittersphere wasted no time on this mishap, however, with someone launching @pendinglarry

Google earned US$2.18 billion in the quarter, down 20 per cent from the comparable quarter last year. Part of the blame falls on Motorola Mobility, which continues to struggle. The unit, which Google acquired last year for US$12.5 billion, generated a loss of US$151 million.

More troubling, though, was that cost-per-clicks — what advertisers pay Google each time a user clicks an ad — fell 15 per cent. Meanwhile, traffic acquisition costs — what Google pays to affiliates and other sites to drive users to its sites — increased 25 per cent, to 2.77 billion.

While profits fell, the company posted strong revenue growth. The company's consolidated revenue, which includes what Google spends to generate traffic, was US$14.1 billion in the quarter, a 45 per cent increase from last year.

Google's stock has been on a tear as of late, rising more than 30 per cent this summer, before hitting a record US$774.38 earlier this month. That prompted a host of analysts to raise their price targets for the stock, led by Citi's Mark Mahaney, who issued a bullish report that said the stock could hit US$850.

The stock has appreciated, thanks to strong growth in spending on search advertisements, the introduction of paid product listings inside Google Product Search and streamlined operations at Google-owned Motorola Mobility. The company has eliminated 4000 jobs at Motorola, closed a third of its 94 offices worldwide and is rumoured to be exploring the sale of Motorola Home, which makes set-top cable boxes, for up to US$3 billion.

The question is whether Google stock, which has been a middling performer in past years, can continue to reach new highs.

On the mobile front, the company faces questions about whether its Android software will become a significantly larger portion of Google's revenues. The company has said that it expects to generate $2.5 billion from Android this year — a small fraction of its overall revenues, particularly given that it is the most-used mobile operating system on Earth. An analysis by Horace Dediu at Asymco projected that Google would generate only 2.5 per cent of the revenue made from Apple's iPhone this year.

More pressingly, Google faces significant pressure from regulators on antitrust and privacy issues. Reuters reported last week that a majority of commissioners at the US Federal Trade Commission favoured bringing an antitrust lawsuit against Google, likely based on charges that the company's search algorithms feature its own results more prominently than those of its rivals.

While regulators appear unlikely to require dramatic changes at Google, the heightened scrutiny and soaring legal bills could distract the company's executive leadership, analysts have said.

Meanwhile, data-privacy watchdogs representing the European Union this week ordered Google to amend its privacy policies, or risk fines or other legal action. France's Commission Nationale de l'Informatique, representing the EU's 27 national data regulators, made 12 recommendations for Google to bring its policies in line with European law. (Google, for its part, said that its policies already comply with the law.)

Google Earnings Slides, Q3 2012

Via CNET.com



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