Google Q3 financial statement out early, shares pummeled

The company missed expectations, and earnings fell

Google's third-quarter financial results are out early, and its shares are taking a beating because the company missed revenue and net income expectations.

Revenue came in at $14.10 billion for the quarter ended Sept. 30, 2012, up 45 percent year on year, according to what looks like a draft copy of the press release that was posted on the U.S. Securities and Exchange Commission's site.

[ Discover what's new in business applications with InfoWorld's Technology: Applications newsletter. | The Web browser is your portal to the world -- as well as the conduit that lets in many security threats. Learn how to secure your Web browsers in InfoWorld's "Web Browser Security Deep Dive" PDF guide. ]

Subtracting commissions and other fees paid to advertising partners, revenue was $11.33 billion, below the consensus expectation of $11.86 billion from financial analysts polled by Thomson Financial.

Meanwhile, net income was $2.18 billion, or $6.53 per share, down from $2.73 billion, or $8.33 per share, in 2011's third quarter.

On a pro forma basis, which excludes certain items, net income was $3.01 billion, or $9.03 per share, below the financial analysts' consensus expectation of $10.65.

At around 1 p.m. Eastern Time, company shares were trading at $687.30, down a little more than 9 percent. Trading in company shares was reportedly halted after a quick drop in their value.

Google blamed the premature release of the statement on a mistake by financial printer RR Donnelley. "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," a Google spokeswoman said via email.

The official earnings report went out before close of the Nasdaq market, with Google shares trading at $695.97, down by $59.84, just before the end of the trading day.

It seems Google took a hit from increased expenses and lower ad prices.

Paid clicks, which are search ads on which people clicked, thus triggering a fee for Google from the advertisers, rose 33 percent year on year. However, the cost of paid clicks, which is the money Google charges advertisers when someone clicks on a search ad, fell 15 percent.

Costs consisting primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs rose to $3.78 billion, or 27 percent of revenue, compared to $1.17 billion, or 12 percent of revenue, in the third quarter of 2011.

In addition, the commissions and fees Google pays to partners also increased to $2.77 billion from $2.21 billion.

In the quarter, the Google side of the business, which is mostly advertising, generated $11.52 billion in revenue, while the Motorola Mobility side of the business contributed with $2.58 billion.

The pro forma net income and earnings-per-share figures exclude stock-based compensation expenses and restructuring and related charges recorded in the Motorola business, net of the related tax benefits. That amounted to stock-based compensation expenses and related tax benefits of $715 million and $155 million, up from $571 million and $116 million in 2011's third quarter. Meanwhile, restructuring and related charges recorded in the Motorola business were $349 million, and the related tax benefits were $76 million.

The company ended the quarter with $45.7 billion in cash, cash equivalents and short-term marketable securities.

Industry analyst Jeff Kagan said in an emailed statement to journalists that he doesn't think the third-quarter results are a sign that Google is on the decline, because the company, like Apple and Samsung, still has a lot of growth opportunities.

"However that does not mean they won't hit bumps in the road. And someday their growth engines will weaken. The important question at that point is will they continue to expand and grow, but look much different, or will they plateau and start to decline," wrote Kagan, whose areas of expertise include the wireless, Internet and telecom markets.

"Fortunately I don't think we have to worry about that yet for Google, but we should always keep that in mind. I think this current problem is just a hiccup in Google's climb," he wrote.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

From CIO: 8 Free Online Courses to Grow Your Tech Skills
Join the discussion
Be the first to comment on this article. Our Commenting Policies