Google Q3 Results Below Estimates on Accidental Early Release

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Google’s Publishing Company, R.R. Donnelley & Sons, have mistakenly filed the 8K earnings statement early to the SEC. Revenues came in at $11.33bn up , stripping out traffic acquisition, and earnings at $9.03 per share, removing the Motorola Mobility restructuring costs and employee compensation charges. This is significantly below the analyst estimates of revenues at $11.9bn and EPS of $10.63. Trading was halted as the premature disclosure and estimate miss rapidly sent the stock 9% lower. Furthermore, the early release was missing Larry Page’s statement.

Delving into the numbers, it looks like there are four main points:

1.Even though PPC clicks were up 33% y-o-y or 6% q-o-q, the revenue per click fell 15% y-o-y or 3% q-o-q – the fourth consecutive quarter of decline

2.The strengthening dollar meant at $136m was bypassed on exchange rate losses with its international business.

3.Traffic Acquisition Cost (TAC) increased by over 20% y-o-y, or $0.5bn, to $2.77bn – 26% of advertising revenues, up from 24% the year before.

4. Motorola Mobility revenues at $2.58bn with an adjusted operating loss of $151m.

Website advertising revenues were reported at $7.7bn, international revenue at 53% of the total at $6.1bn.

In conclusion, the numbers are hinting that Google (NASDAQ:GOOG) is losing momentum in the same manner as Facebook, i.e. as mobile traffic is on the rise, the variety of access platforms (Safari on Apple for one) and lack of Google search dominance in this arena is hitting growth rates. This could also be signalling the increased use of apps to go direct to the acquisition by the evermore savvy user (i.e. Amazon, Ebay), bypassing Google, and hence a potential paradigm shift in the online space.

As the Company is paying more for traffic and getting less cash per click it’s looking like there could be a spanner in the works for margins going forward.  The lacklustre performance of Motorola doesn’t help either and you can’t imagine that the 20% workforce cuts are doing any good for morale. Analysts will be checking models and revising growth estimates on the back of this data, potentially leading to target price reductions and resultant weaker market sentiment towards the stock – and with consequent read across to Facebook and their problems of how to monetise mobile users. The conference call is set of 1:30 Pacific Time.

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