Google (GOOG) Prematurely Releases its Lackluster Third Quarter Earnings

Shares of search giant Google (GOOG: Charts, News) plunged yesterday, after the Mountain View, California-based company mistakenly released its disappointing third quarter earnings report in the morning, rather than after the market close, as previously stated.

For the quarter ending on September 30, Google earned $9.03 per share on revenue of $11.3 billion, missing analysts' expectations of $10.65 per share on revenue of $11.8 billion. Combined with Motorola and other segments, the company's consolidated revenue came in at $14.1 billion - a 45% increase over the prior year. This surprising miss on both the top and bottom lines initially caused Google shares to slide nearly 10% before the company requested trading to be halted around noon. Daily Chart
Google's investors had come to expect strong earnings from the company, after the company beat earnings estimates in the first and second quarter by an average margin of 2.3%. Google hasn't offered a clear explanation of the earnings leak yet, vaguely attributing it to a leak at RR Donnelley, a printing company. On the surface, Google's numbers looked fairly strong. Google's own family of sites generated $7.73 billion in sales, while its distribution network brought it $3.13 billion - respective increases of 15% and 21% over the prior year quarter. Paid clicks on both surged 33% over the prior year and 6% sequentially from the second quarter. However CPCs (cost-per-clicks) declined 15% from the prior year quarter and 3% sequentially. Google attributed this decline to advertisers valuing mobile clicks - originating from smartphones and tablets - less than laptop and desktop-based ones. The surging popularity of these mobile devices may force Google to adjust its pricing system in the near future. Meanwhile, traffic acquisition costs, which Google paid to network partners, rose to $2.77 billion, up from $2.21 billion in the prior year quarter. Other expenses which weighed on its top line rose 27% to $3.78 billion. In other words, although revenue increased substantially, margins declined and costs rose - textbook problems which have plagued many Internet-based businesses, such as Groupon (GRPN: Charts, News), recently. Google's massive acquisition of handset maker Motorola - which many analysts warned would be a dead weight on the company's bottom line - offset many of the company's gains. Google's Motorola segment, which was primarily acquired for its patents, generated $2.58 billion in revenue, with $1.78 billion from its mobile segment and $797 million from its home segment, and contributed to 18% of Google's consolidated third quarter revenue. Unfortunately, these gains were offset by a $527 million operating loss. This is the first quarter that Google has included Motorola, which it acquired in May, in its quarterly earnings report. Reports that Google is planning to up the ante in the hardware arena, first with its Nexus 7 tablet and then with a new $99 variant available during the holiday season, have investors worried. Google was able to grow exponentially since its early days due to strong revenue and high margins, which led to explosive earnings growth. With unclear plans on its hardware front, analysts believe that Google's growth may slow down, similar to its rival Microsoft (MSFT: Charts, News), if it gets bogged down by too many side projects rather than focus on its core competencies. Shares of Google trade at 14 times forward earnings with a 5-year PEG ratio of 1.2. The stock does not pay a dividend. Other News About GOOG Google Under Pressure to Wring Sales From Mobile Users Google's weak mobile numbers cause concern. Google Earnings Release Published Early; Stock Down 10%, With Trading Halted Google accidentally leaks its lackluster earnings; shares crash. Other Stocks in the News Earnings Preview: McDonald's Corporation, Slower Growth In Third Quarter How will McDonald's fare today as it releases its third quarter earnings? Starbucks Corporation : UK Committees to Examine Starbucks Tax Strategies Starbucks is being investigated for possible tax evasion in the UK. Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Oct 19, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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