Google Report Creates Stock Panic
October 20, 2012

Google’s Early, Underwhelming Earnings Report Creates Stock Panic

redOrbit Staff & Wire Reports — Your Universe Online

Price targets on Google shares were reduced by multiple brokerage firms Friday, one day after the company prematurely released earnings reports that showed that their third-quarter earnings were far below Wall Street expectations.

According to a Reuters report, at least seven brokerages cut price targets on the Mountain View, California-based tech giant's stock shares in response to the report, which was released hours ahead of schedule due to a corporate error. The report "revealed slowing sales in Google's core Internet advertising business," the news agency said, adding that analysts have pointed out that "growing mobile advertising revenue points to better times ahead."

"The quarterly earnings missed expectations for the second time in a year but analysts said the decline was a short-term trade-off as mobile advertising revenue becomes a bigger part of its business," they said. "Chief Executive Larry Page, speaking on an earnings call, said that Google's mobile business, which includes app sales and advertising, was now generating revenue at an annualized run rate of $8 billion, up from about $2.5 billion last year."

The premature filing, which had not been expected until the closing of the stock market on Thursday, caused Google to lose more than 9% of its market value, Alexei Oreskovic and Edwin Chan of Reuters had reported earlier on Friday.

The company blamed the miscue on its financial printers, RR Donnelley & Sons Co, who they said filed the papers without their authorization, Oreskovic and Chan said. After the filing, which came more than three hours earlier than anticipated, the company lost $22 billion in total value, according to Telegraph Consumer Technology Editor Matt Warman.

The mix up "sparked panic" among investors, Warman said, and even though "the numbers would have made uncomfortable reading for investors" regardless of when they were made public. He added it was "hard to overstate the scale of a blunder that saw an incomplete press release sent to the markets early, and saw shares suspended after their precipitous fall."

The initial statement was filed with the U.S. Securities and Exchange Commission (SEC) and published at 9:30am Pacific Time, according to a BBC News report. The release was incomplete, the British news organization explained, and contained the phrase "PENDING LARRY QUOTE," suggesting that the statement was waiting for a quote from Page before it would be made public.

In a conference call held later on in the day, Page "downplayed" the early release controversy, according to San Francisco Chronicle reporter Caleb Garling. He also dismissed the concern over the financial results, stating their search engine's total user engagement was on the rise and that such a trend would open up "a huge new universe" for advertisers.

The company's net revenue, minus traffic acquisition costs, was $11.3 billion, or approximately $0.6 billion below Wall Street forecasts, according to Reuters. Google also reported a decline in average cost-per-click for the fourth straight quarter -- 3% from the second quarter of 2012 and 15% of the third quarter of 2011. That will impact the price that advertisers pay Page's company, the news agency noted.

"The core business seems to have slowed down pretty significantly, which is shocking," Sameet Sinha, an analyst with B Riley & Co, told Reuters. "The only conclusion I can look at is, search is happening more and more outside of Google, meaning people are searching more through apps than through Google search. That could indicate a secular change, especially when it comes to ecommerce searches. The big fear has always been, what if people decide just to go straight to Amazon and do their searches? And potentially that's what could be happening."

"While Google's results are disappointing, coming in well below analyst expectations, it was their early publication that spooked investors," said BBC News Business Reporter Ben Thompson, adding that the snafu was damaging to the company "because it doesn't give Google the opportunity to explain the figures or manage market expectations. In normal circumstances, earnings reports come with a whole series of conference calls and briefings between the firm's management and investors, traders and journalists. Without the briefings, the numbers are left to speak for themselves."