Google to Alter How It Presents Earnings
Google Inc. said Thursday that it planned to meet Wall Street halfway on how it reports quarterly results, seeking to dispel confusion created by its strict adherence to accounting rules and putting it in step with many of its peers.
The Web search leader said it would present third-quarter results next Thursday in operating terms, excluding such items as the after-tax effect of expensing employee stock options. It has previously reported in net terms only.
Mark Fuchs, chief accountant of the Mountain View, Calif.-based company, detailed the plan in a statement released on Google’s company weblog.
In the first four quarters since its successful initial public stock offering in August 2004, Google has flouted Wall Street convention by not providing financial forecasts and by presenting only a view of net income in its reports.
That practice -- an attempt to abide strictly by U.S. generally accepted accounting principles, or GAAP -- put Google at odds with many U.S. listed companies. Technology companies in particular often downplay net results in favor of less formal measures of their financial performance.
Quarterly earnings reports from most of these companies include a second set of so-called pro forma figures that distinguish between operating and nonoperating items.
In the past, Fuchs wrote in the online statement, the company had provided only GAAP earnings per share. “But because Wall Street analysts typically estimate and describe our results with non-GAAP EPS numbers,” he noted, “that resulted in some confusing apples-to-oranges analyses of our results.”
Analysts often say they prefer the operating figures because that presentation allows them to look through acquisition costs and option expenses to gain a clearer picture of how well a company is doing on a continuing basis.
“Investors prefer to see it both ways because pro forma results give a true operating picture of the company,” said analyst Martin Pyykkonen of Hoefer & Arnett in Boulder, Colo. “It’s really just about transparency.”
Analysts often bypass stock option expenses when formulating their profit forecasts.
These in turn become the basis of consensus earnings forecasts assembled by Thomson Financial and Reuters Estimates that typically serve as the single most important number investors use to evaluate quarterly profit trends.
Confusion among investors, analysts and the news media in the first few minutes after Google has released quarterly results has contributed to volatility in its stock as market players struggle to sort out how net profit compares with Wall Street’s hopes.
The company typically has cleared up the confusion an hour or so after the release, when it would detail both its net results and various non-GAAP pro forma measures in a conference call with investors.
Next week, and beyond, Google will simply place an addendum to its normal net income presentation that seeks to reconcile the effect of employee stock options to those results, it said.
Google shares fell $3.53, or 1.2%, to $297.44. The stock closed as high as $318.68 this month but fell back in line with a decline in the broader markets ahead of third-quarter reporting season.
