Based on a report that aired on CNBC a few moments ago, there may be a bigger scandal with Google earnings than their accidental premature release.
CNBC’s Jon Fortt reported that, according to conversations he’s had with people in the financial community, Google “has been calling around for the past couple of days trying to prepare analysts for this report not to look so great—trying to skew their attention towards certain numbers that might not make this look as bad as it does right now.”
Fortt continued, saying, “The fact that they knew this report was going to be an issue, combined with this error apparently on R.R. Donnelley’s side is creating quite an issue for them internally.”
Google has been calling analysts to warn them it would have a bad quarter?
Uh oh. That’s a no-no.
Calling analysts to try to reduce “expectations” in advance of a weak quarter was something that companies did routinely in the 1990s, before the enactment of Regulation FD, which explicitly prevents such communications.
Tipping off an analyst to forthcoming results, whether explicitly or implicitly, is unfair to any investor or analyst who isn’t privy to such information.
So if this really happened—if Fortt’s sources aren’t just relaying rumours or trying to sound smart and in-the-know in the wake of a disappointing earnings report—Google may have a bigger scandal on its hands than its bizarre early earnings report.
*UPDATE: CNBC’s John Fortt returned to the air about an hour after his initial report to clarify his remarks. He said that Google had not called analysts to give “guidance” about the quarter.
Now, companies can give different kinds of guidance, from explicit numbers (which, these days, are generally published—except in Facebook’s IPO) to suggestive comments about how an optimistic analyst might want to factor such-and-such a concern into his or her estimates, and so forth. We thought that this might have been what happened here. But a source familiar with Google’s investor-relations practices tells us that Google does not give this kind of “soft” guidance, either.
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