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Google struggling to make money-20% decrease in quarterly income – does this make sense?

by on October 19, 2012 in featured item, Google, Nuggets, PR

You may have heard with some surprise that Google’s stock price dropped a whopping 9% yesterday—and that this drop came in response to what looked like a 20% decrease in quarterly income. Anybody heard news of Google struggling to make money when “paid clicks surged by 1/3 from a year ago, and 6% from the previous quarter”? What happened?

Google hammered by triple whammy of rising costs, falling prices and big losses at Motorola

Here’s a hint: the company’s quarterly earnings report began with the phrase “PENDING LARRY QUOTE”. That’s Google CEO Google’s stock price; he was supposed to give a quote before the report went out–after the day’s final trading bell. Unfortunately, the unofficial statement appeared on the SEC website just after noon, inspiring what The Wall Street Journal’s Steve Russolillo describes as “mayhem”. We’ll call it a “premature release.”

Google quickly issued a follow-up statement blaming RR Donnelley, the company that prints its reports, for filing the earnings without authorization because, as mentioned above, the company wasn’t supposed to release the data until after the day’s trading ended. Whoops!

Turns out that Google’s third quarter earnings really were a good bit lower than expected—and the fact that the company’s stock surged to all-time highs during the third quarter on the strength of what now look like very optimistic projections only amplified the sense of disappointment among investors.

The big problem: While the number of paid clicks went up, the cost of advertising decreased–along with the average cost-per-click. Operating costs continued to rise as well, so of course the company’s earnings failed to deliver as hoped. The stock would have dropped no matter what, but this error just made everything worse.



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