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Report Snafu Throws Google’s Stocks Into a Spiral, $20B in Shareholder Wealth Wiped Out

Oct. 18, 2012 10:41pm Becket Adams

Despite being on the cutting edge of information organization, Google proved Thursday morning that even leaders occasionally stumble and fall.

This became painfully obvious after a contractor released the tech company’s third-quarter earnings report more than three hours before the numbers were supposed to come out, triggering an 8 percent drop in Google’s stock price that erased about $20 billion in shareholder wealth.

In fact, the downward spiral became so bad, Google was forced to halt trading on its stock:

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 report was scheduled to come after the market closed at 4 p.m. Instead, a filing was made around 12:30 p.m.

Google said it was a draft. The second paragraph of the press release said “PENDING LARRY QUOTE,” a holding spot for CEO Larry Page’s prepared remarks. Google said Donnelley informed the company of the error after it happened. Google said it worked with the Nasdaq Stock Market to halt trading.

After a nearly three-hour trading 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.

But even without the early reporting mistake, Google’s third-quarter earnings may signal trouble for the tech giant.

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.

As noted by BuzzFeed’s John Herrman, there was one sentence in the leaked report that shoudl have the higher-ups at Google worried:

Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 15% over the third quarter of 2011 and decreased approximately 3% over the second quarter of 2012.

Keep in mind, ad revenue is how Google makes its money. Simply put, this is not good (for them, at least).

“Google makes virtually all of its money from contextual advertising in its own products, such as search and Gmail, and through partners that use its ad product, AdWords. That entire business model is based on the value of user clicks. (I click an ad in Gmail, Google gets a penny. I click on ad on a website that uses Adwords, the site owner and Google each get a half a penny,” Herrman explains.

“The value of those clicks is going down, and there’s no reason to believe it will go back up: this type of unintelligently targeted advertising is not popular on social networks, which are luring away advertisers, and AdWords specifically has no place on social networks that Google doesn’t own,” he adds.

As has been the case for the past year, the average prices companies pay Google for ads appearing alongside search results also fell.

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.

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.

Bottom Line: The thing Google relies on the most for cash flow is decreasing in value. This is reflected in the leaked report, this is one of the reasons why investors reacted so poorly, and this is something CEO Larry Page and his crew will have to address if they want to remain a leader among tech companies.

Follow Becket Adams (@BecketAdams) on Twitter

The Associated Press contributed to this report.

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Comments (29)

Rattle13
Posted on October 19, 2012 at 10:07am
Bing!

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- 702TruthSeeker
  Posted on October 19, 2012 at 10:32pm
  google stock is soooo overpriced!!! personal information of a nation with 14 trillion dollar debt is pretty useless and since that’s where their money comes from google will soon be toast…
  
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marcus_arealius
Posted on October 19, 2012 at 5:55am
The simple fact is this : Anyone who works in an industry with a large flow of revenue, has opportunity and temptation to devise methods to divert a portion of that flow into his own realm. Stock market, software, advertising, entertainment, real estate, banking, lending, are all subject to the same thing. human dishonesty. The only control is the ‘market’ decides how large and how long the money flows are. I don’t really think the general public gives a flying crap how dishonest the entire planet is, as long as they can go home, eat, and sleep in some level of contentment.

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voting-for-romney
Posted on October 19, 2012 at 5:21am
1. Google has enraged long time web site owners (who had good rankings?) with rules that affect page rankings, with no outcry from the normal pro-regulation movement?

2. Page ranking results affect the type and amount of compensation due to web site owners, who were sorely disappointed this election season, since expected profits evaporated into the pockets of Google, or found themselves at the mercy of Google picking winners and losers?

3. Google has now set its sites on web hosting companies (the very infrastructure of the internet itself) by offering “free limited services” in the name of helping “businesses” (web sites are not that expensive to start and operate to begin with?)?

How can a search engine company venture into partnerships with “big” web hosting companies by dumping products below market prices (hurting small businesses that provide IT services?) and not alarm the private sector, or is this all the fallout from decisions made in Nevada several years ago that allowed search engine companies to make some of the rules, which begs the question will Congress now become involved?

Throw in the mix behind the scene political murmurs and Microsoft starts looking like the good guys again? The problem is not a three hour time difference in the report, the problem is cracks in the foundation caused from the ebbs and flows of arbitrary page rank rules and architecture or the artificial requirement of social media?

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- Chet Hempstead
  Posted on October 19, 2012 at 7:58am
  You keep putting question marks at the end of sentences that aren’t questions? It’s very disconcerting to the reader? What’s up with that!
  
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coyote1hell
Posted on October 18, 2012 at 11:45pm
Buh’Rack said …Heee heee…not run by me…I hate when someone suceeds..and it’s not Da’ Gov..you didn’t do that…Sharia Lw will eliminate you…Just ask 7600,00.00vacation..uhhhh.. Motch,an’ her friends..you suckers Lose !…

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The-Monk
Posted on October 18, 2012 at 11:44pm
I’d like to see the reports on who shorted Google prior to this….

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- DadRocked
  Posted on October 19, 2012 at 12:04am
  I was just thinking the same and who had unloaded a large stake of stocks at about 12:25, right at the time of the drop. Then again, who caught wind and profited by buying at 12:40 and selling by 12:50 before it stabilized fell again and stabilized at 1:00p at the time of stop trading order. Hmmm…
  
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- sillyfreshness
  Posted on October 19, 2012 at 12:12am
  A stock can only keep going up for so long before a correction. Just like the housing market. It corrected itself in 2008. A that normally cost $150k in like 2000 ended up costing $450K in 2007. That kind of inflation in houses cannot be sustained. At that rate the same house would now cost close to 1 million today. I want the housing market to be in a depression. Maybe people can actually buy a house now. How can you afford the monthly mortgage payment on at $450K house? You can’t. The payment would be around $3,000 a month. So I hope the housing market crashes some more and get back down to reasonable levels. Anyway same with stocks. Companies like Google and Apple can only go up for so long before they have to raise prices to keep revenue coming in. I think the stock market plays a role in inflation since companies have to keep raising prices for their products in order to meet Wall Street expectations every quarter. Wall Street plays a part in maintaining inflation.
  
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- Big Media Bias
  Posted on October 19, 2012 at 12:28am
  The stock market is rigged. Everyone knows it. The timing of the stock fall is relevant. Obama’s poll numbers are dropping. Which means someone is attempting to profit before he leaves office. Obama = Google. They are intricately tied. A lot of stock market “corrections” will be occurring in the near future. Everyone was warned to take their money OUT of the market two years ago. You are a fool if you still play the market.
  
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- DadRocked
  Posted on October 19, 2012 at 12:49am
  Big Media Bias… The part of “Which means someone is attempting to profit before he leaves office. Obama = Google”… There is a plausible connection there… Over the past few weeks I have been noticing an interesting switch within the words of some MSM and others. The tide is changing and these fair weather ‘fans’ are subtly getting ready for a change. The market will, what they call ‘adjust’ and then the finances / inflation / economics of this country of ours will “Hit The Fan”… Grab your hats folks, put your tray tables in the upright position… There is going to be some major turbulances coming up shortly.
  
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- ProbIemSoIver
  Posted on October 19, 2012 at 4:47am
  Silly Rabbits.
  
  The Stock Market is rigged.
  
  Report this comment
- bobdiamond
  Posted on October 19, 2012 at 5:21am
  There was a snafu, although they really missed on earnings and the stock would have gone down had the earnings report been released as it was scheduled. Read political commentary at: http://smallcraftadvisorychronicles.blogspot.com/
  
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- Boondox
  Posted on October 19, 2012 at 5:21am
  I was almost one of them. Given the coming fiscal cliff.. I’ve been watching it climb more than it probably should for the last few days and was thinking about buying a put contract. I’m really kicking myself right for holding out another day, just one contract would have made me thousands!
  
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grams09
Posted on October 18, 2012 at 11:30pm
I quit using Google over a year ago when it was reported they were spying for the Government.

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- Mil-Dot
  Posted on October 19, 2012 at 9:02am
  That is the real story. I only use Google when I absolutely have to. They are trying to hide the fact that the American people don’t trust them anymore and are not using their products. They are basically spying on the people for the govt and the folks don’t like that. They thought we would just “eat it” and use Google anyway, regardless of the spying. They were wrong.
  
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woodyee
Posted on October 18, 2012 at 11:26pm
Hehehe!

Must’ve taken Bill Gates 10 minutes to reach his front door in a panic, only to realize he hadn’t put his trousers on…

(kiddies, his house is HUGE…)

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- antitheist
  Posted on October 19, 2012 at 1:17am
  Bill Gates is a model for Americans.
  
  Agnostic, liberal, and a once centi-billionaire.
  
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RLJK
Posted on October 18, 2012 at 11:23pm
If we should be boycotting anyone, its Apple. They are a drain on the economy, harming the world of mobile computing by forcing others into submission with expensive lawsuits over ridiculous patents they have no right owning. They don’t allow the world to grow, driving the price of devices up leaving less and less for consumers.

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Wdawg
Posted on October 18, 2012 at 11:18pm
Awesome, stock is on sale! GOOG is a great company to invest in, plan on buying more stock.

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- RJJinGadsden
  Posted on October 18, 2012 at 11:52pm
  Now 0bama is looking into his retirement pension investments.
  
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- Mil-Dot
  Posted on October 19, 2012 at 9:07am
  Yeah, if you think that spying on the American people is a good business model. Screw Google.
  
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- ChildOfTheKing
  Posted on October 19, 2012 at 3:59pm
  Stupid is as stupid does. I got out of the stock market right before it dived a few years back, Smartest move I ever made or I would have lost thousands. GOODIE FOR ME.
  
  USE IXQUICK.COM.
  
  Google is in bed with King Obama and his socialist minions.
  I use IXQUICK.COM, which is far better than Google or Bing put together and THEY DO NOT TRACK YOU OR KEEP YOUR IP ADDRESS! LOVE THEM!!!
  
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Individualism
Posted on October 18, 2012 at 10:55pm
good job liberty folks, boycott google and get rid of them for their tracking and spying on you.

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blackyb
Posted on October 18, 2012 at 10:52pm
Now we know why the govrnment is buying up all the bullets, the price is going up and they do not think the rest of us can afford them.

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ValdostaMRA
Posted on October 18, 2012 at 10:51pm
I Stopped using G-MAIL, (switching to Reagan.com)….I wonder how many of Beck’s viewers did this? Did WE turn the Ship, or at least Lean it to the Right?

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- TheGDL
  Posted on October 19, 2012 at 2:10am
  I use hushmail, as it offers secure webmail. I recommend this site especially if you are worried about the government sniffing your email (carnivore). Also, I do hate to be the bearer of Bad news but, you are not better off using Reagan.com. After briefly looking through their privacy policy it clearly states the following: “We may also use one or more advertising network providers to help present advertisements or other content on this website. These advertising network providers use cookies, web beacons, or other technologies to serve you advertisements or content tailored to interests you have shown by browsing on this and other websites you have visited. Advertising network providers collect non-personally identifiable information such as your browser type, your operating system, web pages visited, time of visits, content viewed, ads viewed, and other click stream data.”
  And then goes on to state: “The use of cookies, web beacons, or similar technologies by these advertising network providers is subject to their own privacy policies, not our privacy policy for this website or its Service.”
  On their list of affiliates that would be data harvesting, these 4 names exist: Microsoft (Hotmail), AOL, Yahoo, and Google.
  
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Psychosis
Posted on October 18, 2012 at 10:48pm
google deserves what ever pain comes their way

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- GBTVFan_Non_American_Overseas
  Posted on October 18, 2012 at 11:09pm
  My thoughts exactly!
  
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