Google Surprises Its Own Management With Earnings Release

by Paul Wilson | Friday, Oct 19, 2012 | 673 views

Yesterday Google Inc. (NASDAQ:GOOG) released its third quarter 2012 financial results. Results were disappointing and the stock dropped 8% for the day, although part of the decrease likely resulted from confusion surrounding an early release of the results as discussed next. More about the numbers later.

The story that is capturing everyone’s attention is that Google’s third quarter results were accidently filed early with the SEC in the middle of the trading day, and coincidently while the company was holding a press conference to debut its new Chromebook laptop.

Under NASDAQ rules, companies disclosing “any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions” should provide notice of the disclosure to NASDAQ’s MarketWatch Department in advance. Then NASDAQ has a chance to evaluate the materiality of the disclosure, and if needed implement a trading halt to provide for a more orderly and fair market reaction. Apparently this was not done in this case.

But more importantly for companies, especially when disclosures are negative as in the case of Google’s financial results, management almost always wants to control the timing of the disclosure so they can put a positive spin on the information. So most earnings reports, good or bad, are released before or after the regular trading day to give investors and regulators some time to digest the new numbers and management’s interpretation before trading resumes.

As to the mistake, Google issued a statement blaming its printer R.R. Donnelley for the early release – but the numbers released were Google’s numbers.

As to the Numbers:
From Google’s press release on earnings: “We had a strong quarter. Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter,” said Larry Page, CEO of Google. “I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.”

But earnings were less than expectations. And most worrisome to many commentators were a) the fact that Google is getting less money per click on ads. Is this a long-term trend – especially considering that as the world moves more to mobile devices, many believe that mobile ads are less valuable than those displayed on PCs? And b) Google’s recently acquired Motorola Mobility is losing more now than when it was acquired.

Today’s trading session will be interesting now that investors have had a chance to think about the numbers and get over the shock of the early earnings release. Was the 8% drop in GOOG yesterday largely due to market chaos and be at least partially reversed, or will investors after reflection come to the conclusion that Google has long term valuation issues?

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