Google releases earnings prematurely, triggering stock sell-off
SAN FRANCISCO — It was a humiliating corporate gaffe the likes of which few can recall, particularly from a giant technology company like Google Inc.
Google, which was supposed to release earnings after the closing bell Thursday, jumped the gun and inadvertently dropped a disappointing third-quarter earnings report on unsuspecting investors during midday trading.
Within minutes, the surprise miss and the even more surprising mistake wiped out about $20 billion in market value before Google asked Nasdaq to halt trading of its shares. Google quickly blamed the blunder on its financial printer, R.R. Donnelley & Sons Co.
The double whammy undercut three months of sharp gains that had put Google ahead of Microsoft Corp. to become the second most valuable technology company after Apple Inc. and hammered other technology stocks including Facebook Inc.
On the Web, the incident quickly became a springboard for snarky commentary. Google, the Mountain View, Calif., company that prides itself on organizing the world’s information, had blown it when organizing its own.
And Google’s very serious chief executive, Larry Page, found himself the brunt of jokes on Twitter (one account was called @Pending-Larry because the press release prematurely filed with regulators had “pending” in the space where a quote from Page was supposed to be.)
Speaking haltingly in a raspy voice on an afternoon conference call with analysts, Page apologized for the “scramble earlier today.”
“As our printers have said, they hit send on the release just a bit early,” said Page, who has been skipping earnings calls because of an unspecified illness that the company said makes it difficult for him to talk. “We had a strong quarter and I am very happy with our business.”
“It’s truly an exciting time to be at Google,” Page added.
But its earnings release, a quarterly — and usually orderly — ritual, was not supposed to be exciting.
The premature filing with the Securities and Exchange Commission that detailed ongoing losses at Google’s recently acquired cellphone business, Motorola Mobility, and falling prices for clicks on ads was released in the middle of a news conference that Google was holding to debut its new Chromebook laptop in San Francisco.
The earnings release hours ahead of schedule caught traders off guard and triggered confusion and a sharp sell-off in Google shares. Stock analysts rushed out preliminary takes on the quarter, but the filing exacerbated the stock price decline, they said.
“The problem is when you have a miss and a mistake, you just get total chaos in the market,” BGC Partners analyst Colin Gillis said.
It was also an unsettling reminder of Facebook’s trading glitches that plagued its stock market debut in May, contributing to the stock’s first-day decline.
Google’s stock, which had surged 27% over the last three months, fell $60.49, or 8%, to $695. At one point it dipped more than 10% before trading was halted.
Aside from the public embarrassment, the mishap delayed Google from putting a positive gloss on its earnings — something companies are anxious to do whenever they uncork disappointing results.
Most big companies release profit reports before the stock market opens or after it closes. That gives them the chance to put an upbeat spin on bad news before trading in the shares resumes.
“It is the simplest thing in the world, and they didn’t get it right,” said Michael Robinson, executive vice president at Levick, a financial communications firm. “This is like the Three Stooges building a house. Everyone got hurt and no one looked good doing it.”
Google said in an emailed statement that R.R. Donnelley filed a draft of its earnings “without authorization.”
For its part, Donnelley said it was investigating how it happened.
“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,” the company said in a statement.
The error probably dinged the confidence of many small investors, who are large holders of Google shares and are already reeling from miscues such as the botched handling of Facebook’s initial public stock offering and the market’s “flash crash” plunge two years ago.
“Investors have a lot of reasons going back to 2008 and 2009 to not trust the markets,” Robinson said. “This is another serious blow to investor confidence and trust.”
Analysts were most alarmed by the performance of Motorola Mobility, the troubled cellphone maker that Google bought for $12.4billion. Gillis called it “the Motorola millstone.”
Motorola recorded an operating loss of $527 million, more than triple a year ago when it was a stand-alone company. Google has said it plans to lay off about 20% of the company’s 4,000 employees and close one-third of its facilities.
Wall Street was also spooked by softness in the advertising business that suggests Google, like Facebook, has a “mobile problem” as users shift to mobile devices where the search giant can’t charge as much for ads and the ads, which are more difficult to see, tend to be less effective.
Google earned $2.2 billion, or $6.53 a share, in the third quarter, compared with net income of $2.7 billion, or $8.33, in the same quarter last year.
The earnings would have been $9.03 a share if not for accounting costs related to employee stock compensation and the Motorola charges.
Revenue increased 45% to $14.1 billion. Excluding compensation for websites that drive traffic to Google’s ads, revenue was $11.33 billion. Analysts were expecting $11.86 billion.
Hamilton reported from Los Angeles.
