Google Q3 earnings (b)leak,trade stops

As if that wasn’t jarring enough,the results alarmed investors because the company’s earnings and revenue fell well below analyst projections. The disappointment triggered an 8 percent drop in Google’s stock price that erased about $20 billion in shareholder wealth.

“This is a monumental failure of epic proportions,” said Michael Robinson,an executive vice president for the Levick Strategic Communications,which specializes in financial crisis management. “This was bad news compounded by bad process. It came out in the worst way possible.”

Google Inc. blamed printer R.R. Donnelley & Sons Co. for filing the company’s quarterly statement with the Securities and Exchange Commission more than three hours ahead of schedule.

“We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation,which is to serve our valued customer,” R.R. Donnelley said in a statement.

The embarrassing mix-up prompted Google CEO Larry Page to preface his review of the quarter with an apology during a conference call with analysts.

“I am sorry for the scramble earlier today,” Page said,still sounding hoarse from a mysterious throat ailment. The problem left Page unable to speak during the summer,causing him to skip Google’s second-quarter earnings call three months ago.

Page went on to paint a bright picture,not only of the most recent quarter,but for the next few years. “Every day,I wake up and I am delighted about our opportunities to keep growing,” he said.

The pep talk didn’t immediately resonate with investors.

Google’s stock initially plunged more than 9 percent after the early release of the results. Trading was then suspended to allow more time for the information to be digested. After a nearly three-hour break,investors decided the results weren’t quite as bad as they initially appeared,and the shares recovered slightly.

Even so,the stock wound up dropping $60.49,or 8 percent,to close at $695.

The sell-off reflects a reversal of the optimistic sentiment that had propelled Google’s stock to an all-time high earlier this month. The stock had surged 27 percent in the three months before Thursday’s unsettling developments.

Google earned $2.18 billion,or $6.53 per share,during the three months ending in September. That compared with net income of $2.73 billion,or $8.33 per share,last year.

The earnings would have been $9.03 per share,if not for Google’s accounting costs for employee stock compensation and the Motorola charges. Analysts polled by FactSet were expecting $10.63 per share,on average.

Revenue climbed 45 percent from last year to $14.1 billion. Excluding compensation for websites that generate traffic for Google’s ads,revenue was $11.33 billion. Analysts were expecting $11.86 billion

Most of the trouble appeared to be concentrated in Motorola Mobility,a troubled cellphone maker that Google bought for $12.4 billion in May. Analysts have been fretting that Motorola Mobility would turn into a financial albatross,and some of those fears appeared to be realized in the latest quarter spanning from July through September.

The device maker suffered an operating loss of $527 million,more than tripling from the same time last year when it was still an independent company.

Google is trying to improve Motorola Mobility’s performance by laying off about 20 percent of its workforce _ about 4,000 employees _ and closing one-third of its 90 plants and office. Those cost-cutting measures resulted in $349 million in charges during the quarter. But it still could take a few years for Google to turn around Motorola Mobility,Chief Financial Officer Patrick Pichette said on the conference call.

The stronger dollar also hurt Google,just as it has many other U.S. companies that do a lot of business in other countries. That’s because overseas sales are now translating into fewer dollars than a year ago,resulting in less revenue. Excluding Motorola Mobility,Google said its revenue for the latest quarter would have been $557 million,or 5 percent higher,if currencies had remained at the same levels as a year ago.

But there were also some worrisome signs in Google’s main business of selling online advertising.

Google’s ad revenue rose 16 percent from the same time last year,the slowest pace in three years. The company’s ad revenue had climbed by at least 21 percent in each of the previous 10 quarters.

Advertising accounts for 77 percent of Google’s revenue. The rest comes from Motorola Mobility and other products,such as Google’s recently released Nexus 7 tablet computer.

As has been the case for the past year,the average prices companies pay Google for ads appearing alongside search results also fell. The year-over-year decline for advertiser’s “cost-per-click” on Google’s ads declined 15 percent from the same time last year.

The decelerating growth in ad revenue is likely being driven by the growing use of smartphones and tablet computers to access the Internet.

The ads are more difficult to see on smartphones,in particular,so marketers aren’t willing to pay as much for those commercial messages as they do for ads that are seen by people on personal computers. And people relying on mobile devices tend to use specially designed applications that so far haven’t been set up to show as many ads as can be seen in Web browsers. People using mobile apps also have less reason to conduct searches on Google,depriving the company of opportunities to show ads.

“I am not at all worried about this because I think we are better positioned than most companies,” Page assured analysts.

Google is reaping more revenue from the rapidly growing mobile market,largely because of its Android software than now powers more than 500 million smartphones and tablet computers. The company gives away Android to device makers,but the software is fruitful for Google because it’s designed to drive up more traffic to its search engine and other services that show ads.

Page said the mobile market is now generating about $8 billion in annual revenue,including sales of applications,video,books and music in its Play store. Not all of those,sales,though,are recorded in Google’s books because most of the money goes to developers,studios and publishers. A year ago,Google said the mobile market was generating about $2.5 billion in annual revenue,but that figure consisted entirely of ads,so it’s not an apples-to-apples comparison to the $8 billion.

Google results miss; shares dive after premature report

* Revenue,earnings short of expectations as core business slows

* Shares plummet 8 pct; gaffe exacerbated fall – analysts

* Google says printer filed draft results without authorization

SAN FRANCISCO: (Reuters) Google Inc’s quarterly results fell well short of Wall Street’s expectations after its core advertising business slowed,stunning investors accustomed to consistently rapid growth from the Internet giant and wiping more than 9 percent off its market value.

The disappointing numbers on Thursday came hours ahead of schedule in a rare instance of premature filing. Google blamed the misfire on an unauthorized filing by its financial printers,RR Donnelley & Sons Co,and later confirmed the numbers’ accuracy.

The earnings report,which had not been expected until after the market close,revealed a weakening in Google’s core Internet advertising business and persistent losses at its recently acquired cellphone business,Motorola Mobility.

Shares of Google,the world’s No. 1 Internet search engine,finished Thursday’s regular trading session down 8 percent at $695 after a brief trading halt. Some analysts said the inadvertent results release spurred confusion and exacerbated its stock price decline.

Google executives maintained in a conference call on Thursday that the company’s various businesses continued to benefit from healthy growth and that Google was well-positioned to capitalize on consumer’s increasing use of mobile devices.

Chief Executive Larry Page,speaking on his first earnings call since an unspecified voice ailment sidelined him from public speaking in June,said that Google’s mobile business was now generating revenue at an annualized run rate of $8 billion.

Page acknowledged that mobile ad rates were below the rates that Google garners for ads that appear on its standard website. But he said the variety of Web-connected devices used by consumers is creating a huge new universe of opportunities for advertisers.

We’re uniquely positioned to get through that transition and to really profit from it,Page said,citing Google’s Android mobile software,the world’s top operating system for smartphones by market share.

Google,which has been struggling to turn around a Motorola Mobility hardware business it bought for $12.5 billion,reported a 20 percent dive in net income to $2.18 billion. Excluding certain items,it earned $9.03 a share,vastly underperforming the $10.65 analysts had expected,on average.

We have been saying this thing was ripe for a pullback. It’s not like they’re Google not being Google,but you still have some major issues,said BCG analyst Colin Gillis.

Click prices declined for the fourth consecutive quarter after rising for eight consecutive quarters before then. That’s a negative. This is the mobile problem.

The other bit is the Motorola millstone had been ignored by the market,and – boom – now you’ve got weak revenue from Motorola. When you acquire a business and you’re about to whack all kinds of people and close offices,you know what happens to the employees? They take their eye off the ball. Sales are down,Gillis explained.

Net revenue growth at Google’s main Internet business increased 17 percent year-over-year,the first time growth in that business has fallen below 20 percent since 2009. Google Finance Chief Patrick Pichette stressed on the conference call that the revenue growth rate was higher if the impact of foreign currency exchange rates was backed out.

It was just too rapid a deceleration,said Pivotal Research Group analyst Brian Wieser. Many of the same underlying trends drive Facebook advertising.

Shares of Facebook Inc,which headed south shortly after Google’s inadvertent filing,closed down 4.6 percent. Google’s snafu recalled Facebook’s debut,which was marred by technical glitches that also spooked traders and contributed to the stock’s first-day decline.

The decline in Google’s shares come after a three-month run-up in its stock,which reached an all-time high of $774.38 earlier this month.

A BAD MISS?

Google reported net revenue – excluding traffic acquisition costs – of $11.3 billion for the third quarter,below Wall Street’s expectations for about $11.9 billion.

For the fourth consecutive quarter,the company reported a decline in average cost-per-click (CPC),a critical metric that denotes the price advertisers pay Google.

Average CPC declined 15 percent from a year ago and 3 percent from the second quarter of this year. Analysts say that Google,like many of its peers in the Internet industry,has been struggling to adapt to the rapid consumer uptake in mobile devices. Advertisers pay far less for ads on smartphones and tablets than for similar ads on desktop computers.

The core business seems to have slowed down pretty significantly,which is shocking,said B. Riley analyst Sameet Sinha. 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.

But Ryan Jacob,chairman and chief investment officer of Jacob Funds,said he viewed Google’s results as only minorly disappointing,with most of the weakness coming from Motorola as expected.

Unfortunately,by dropping an 8K in the middle of a trading day,people kind of shoot first,ask questions later,said Jacob,whose fund owns Google shares.

JP Morgan analyst Doug Anmuth said in a note that the Google results were light but not as bad as they appeared at first blush.

FILING SNAFU

Google,which recently overtook Microsoft Corp to become the second-largest U.S. technology company by capitalization,had been due to release its results after the market close.

The second paragraph of the press release merely read Pending Larry quote,suggesting that space was reserved for comment from CEO Larry Page.

Earlier this morning RR Donnelley,the financial printer,informed us that they had filed our draft 8K earnings statement without authorization,Google said in a statement. 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.

Shares of RR Donnelley,the U.S. printing services company,slid as much as 5 percent. They closed down 1 percent at $10.76.

Reed Kathrein,a plaintiff lawyer with Hagens Berman who sues companies on behalf of investors,said investors would not have a claim against either Google or RR Donnelley because the earnings disclosure was likely a mistake.

There’s no fraudulent intent here,Kathrein said.

However,Google could have a negligence claim against RR Donnelly to recover any additional costs it incurred in responding to the incident,Kathrein added.

Everyone is trying to figure out if there’s any legal issue with respect to RR Donnelley,said Michael Matousek,senior trader at U.S. Global Investors Inc,which manages about $3 billion in San Antonio.