$20bn wiped from Google's shares after results blunder
News of slump in profits shocks Wall Street after update is sent by mistake
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 18 October 2012
For a company renowned for its mastery over vast vaults of information, Google suffered from a very public blunder last night after its quarterly results were published prematurely, sending its share price into a tailspin as shocked traders digested news of a sharp 20 per cent slump in profits.
Wall Street had expected the search engine giant to give the latest update on its performance after the stock market closed. But unexpectedly, the figures popped up in a filing with American regulators, obviously put out prematurely, with Google blaming its financial printing firm, RR Donnelley.
Confirmation that the early release was anything but planned came in the introduction, which included, in bold letters, no less, the line: "PENDING LARRY QUOTE."
The marker, immediately identified as a reference to commentary from Google's chief executive Larry Page, was soon pasted across the internet as evidence of the blunder.
Mr Page, who earlier this week made his first public appearance in several months after reportedly suffering from an undisclosed ailment that caused him to temporary lose his voice, was later forced to apologise for the snafu. "I'm sorry for the scramble earlier today," he said as the company's planned earnings conference call finally got underway last night. "As our printers have said, they hit send on the release just a bit early," Mr Page said.
For investors, however, the figures proved more urgent than the comedy of the premature release. The results were below expectations, with the both profits and revenues at the Silicon Valley behemoth coming in below what the market had pencilled in.
Net income at the company was down 20 per cent to $2.18bn, while net revenues, excluding traffic acquisition costs, were reported at $11.3bn for the third quarter, well below Wall Street hopes of about $11.9bn. The company, which continues to be weighed down by weakness at the Motorola Mobility hardware business that it bought for $12.5bn, also said its average cost per click – which measures what it earns from advertisers – had declined for the fourth consecutive quarter.
The numbers soon triggered a sell-off in Google shares, wiping around 9 per cent off the tech group's market value, or around $20bn, before trading was suspended as it finalised its release. Later, once trading resumed, the stock recovered to end the session down 8 per cent.
Before Mr Page's apology in the afternoon, a Google spokesman blamed the mistake on the financial printing firm RR Donnelley. "Earlier this morning RR Donnelley, the financial printer, informed us that they filed our draft 8K earnings statement without authorisation," the spokesman said. "We have ceased trading on Nasdaq while we work to finalise the document. Once its finalised we will release our earnings, resume trading on Nasdaq and hold our earnings call as normal."
On the stock market, traders were first surprised and then, just as quickly, disappointed. Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters: "You can't make those mistakes anymore... it's obvious this was some sort of mistake that went out too early. [But] mistake or not the earnings are earnings, [and] the problem is when this happens in the middle of the day, there is no time for analysts' questions and for an evaluation."
Sameet Sinha, an analyst at B Riley, said the slowdown in the company's core business was "shocking". "I don't think anybody saw this," he explained, adding: "The only conclusion I can look at is – search is happening more and more outside of Google."
This, he warned, could point to a broader shift in the way people conduct searches on the internet, particularly when it comes to e-commerce. "The big fear has always been – what if people decide to just go straight to Amazon and do their searches? And potentially that's what could be happening."
Others pointed to the continued weakness at Motorola Mobility, which Google has been attempting to turn around by restructuring the business since buying it last year.
"The Motorola millstone had been ignored by the market and – boom – now you've got weak revenue from Motorola," BCG analyst Colin Gillis said, noting that Google "was ripe for a pullback". "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."
The chaotic decline in Google's shares – their worst performance since January – also had wider repercussions last night as it dragged down other technology companies, and the wider market, with all three of New York's major equity indices – the Dow Jones Industrial Average, the S&P 500 and Nasdaq – closing lower on the day.
"It's a huge impact on the market, and especially the tech stocks. What happened to Google is a continuation in the tech sector of some very poor earnings numbers," Paul Nolte, a managing director at investment firm Dearborn Partners, said.
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