Google stock drops 9 percent on early release of earnings
Thursday, October 18, 2012
Google's stock dropped more than 9 percent Thursday after the company mistakenly released its earnings report several hours ahead of schedule, showing the Internet search giant had a 20 percent drop in profit and revenue that fell short of what most analysts were expecting for the last quarter.
In a statement filed with the Securities and Exchange Commission, Google said it earned $2.18 billion in net income, down from $2.73 billion in the third quarter a year ago. It reported revenue of $11.33 billion after subtracting commissions paid to partners. Earnings per share were $6.53.
Google said the premature filing was a mistake by a contractor. In a statement, a Google spokeswoman said: "Earlier this morning, RR Donnelley, the financial printer, informed us that they had filed our draft 8K earnings statement without authorization. We have ceased trading on NASDAQ while we work to finalize the document. Once it's finalized, we will release our earnings, resume trading on NASDAQ and hold our earnings call as normal at 1:30 PM PT."
It is highly unusual for companies to report earnings during stock trading hours. The statement filed with the SEC included a note that suggested it was a draft, indicating that a comment from CEO Larry Page would be added later.
Wall Street analysts were expecting Google to report earnings of $8.71 a share, or $10.65 a share excluding stock grants and other one-time charges, on revenue of $11.87 billion, according to a survey by Thomson Reuters.
The decline was even more dramatic because Google's stock had soared more than 25 percent in the past three months — making it one of the most valuable tech companies in the world, after Apple and Microsoft — amid signs the company is expanding its business on several fronts including online video and mobile devices. Google, which makes the popular Android operating software, says consumers activate more than 1.3 million new Android gadgets every day.
At the same time, Google has been cementing its dominance in the lucrative online advertising market. Google handles more than two-thirds of all Internet search queries in the United States, which means it sells the majority of search advertising. It's also the leader in selling online display ads, which appear on a variety of commercial websites, after passing both Yahoo and Facebook earlier this year, according to the research firm eMarketer.
But even though Google's business is strong, analysts have cited some lingering concerns:
Google paid $12.4 billion last year to buy Motorola's mobile division, which has struggled to compete in the smartphone hardware market. Google is overhauling that operation by laying off workers and trimming the number of products it makes, but the division's revenue and profit have been shrinking.
In addition, Google is the subject of long-running investigations by U.S. and European regulators who are concerned about Google's consumer privacy policies and whether its dominance of the search business gives it unfair advantage over competitors. Those investigations could produce lawsuits or other regulatory action that might embarrass the company or put a dent in Google's business.
Referring to those investigations, Macquarie Securities analyst Ben Schachter wrote in a report this week: "There are meaningful headline risks, as well as long-term strategic risks."
While analysts were expecting an upbeat report, they have been eager to hear from Google's chief executive, Larry Page, who skipped the company's last financial conference call in July because of an unexplained problem with his voice. He was expected to speak on the call Thursday.
The 39-year-old Page has said there was nothing seriously wrong with his health, but he had not spoken in public for several months until earlier this week, when he addressed several hundred Google advertising partners at a meeting in Arizona.