Google's weak results leak out – stock stumbles - Technology

SAN FRANCISCO – Google shocked investors Thursday when its earnings report was mistakenly filed with the Securities and Exchange Commission several hours earlier than planned, reporting disappointing third-quarter profits.

Google stock dropped sharply after the report, down more than 9 percent, or $68 a share, before Nasdaq halted trading in its shares in the early afternoon. Shares resumed trading late in the day and were off 8.3 percent.

The mistaken filing surprised stock analysts, reporters and even Google's own public relations staff, which did not know about it at first. Google later blamed the error on R.R. Donnelley & Sons, the publisher, which it said had filed an early draft of the earnings "without authorization." R.R. Donnelley, whose shares dipped as much as 5.6 percent before recovering, said in a statement that it had started an investigation to determine how the error happened.

The company reported third-quarter revenue of $14.1 billion from both Google's core search business and from Motorola Mobility, the ailing cellphone maker that Google recently acquired. This was an increase of 45 percent over the year-ago quarter.

Net revenue, which excludes payments to the company's advertising partners, was $11.33 billion, up from $7.51 billion.

But net income sank to $2.18 billion, or $6.53 a share, from $2.73 billion, or $8.33 a share.

Analysts largely blamed losses from Motorola and a decline in Google ad prices for the poor results.

Later in the day, Google filed an amended earnings report with the SEC that included a statement from Larry Page, Google's chief executive, calling it "a strong quarter."

"At just 14 years old, we cleared our first $14 billion revenue quarter," Page said. "I am also really excited about the progress we're making creating a beautifully simple, intuitive Google experience across all devices."

Even so, both net revenue and earnings were well below analysts' expectations.

The miss was all the more surprising because Google shares had an outstanding quarter, increasing 35 percent over the past three months, in part because of strong performance in new businesses like display advertising as well as stumbles by competitors like Facebook. This month, Google's market capitalization had edged ahead of Microsoft's to make it the second most valuable tech company, behind Apple, but it has again fallen behind Microsoft.

Before the recent rally, the shares had been held back by concerns over antitrust and privacy investigations by regulators in the United States and elsewhere as well as concerns about Motorola's losses and the potential of new Google businesses in the face of slowing search advertising growth.

Under the leadership of Page, Google's chief executive since last year, the company has gradually ameliorated fears about Google's alternate sources of revenue.

Long the leader in search advertising, with 75 percent market share, it has now become the leader in both other forms of digital advertising, display and mobile, according to eMarketer, the digital advertising research firm. Its market share in display is 15 percent, putting it ahead of Yahoo and Facebook, and its share of mobile ad revenue is 55 percent.

But other concerns about Google's business have been amplified.

It was the first quarter that Motorola Mobility has been included in full-quarter earnings, and its performance weighed on Google's results. It lost $527 million in the quarter, despite deep cuts and layoffs.

"Motorola is a millstone, and as revenue declined, expenses remained," said Colin Gillis, an analyst at BGC Partners.

The Federal Trade Commission is preparing a staff recommendation to sue Google over antitrust violations before the end of the year. Meanwhile, the FTC has fined Google for privacy violations, and this week, European regulators warned Google that it faced penalties if it did not amend its privacy policy.

Google's earnings release arrived while reporters were gathered at a Google media event to introduce its new laptop running the Chrome operating system.

As reporters began whispering and running out of the presentation, Google announced that it had also erroneously published the website announcing the new laptops, before the scheduled release time.

The earnings release was such an early draft that it said "pending Larry quote" at the top where Google planned to insert a quote from Page. A parody Twitter account, @PendingLarry, immediately appeared, with posts like, "I mean … it's 4:30 somewhere in the world, right?"

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