Google’s stock fell a shocking $68, or 9%, after the company’s filing agent accidentally released a draft of part of its Q3 earnings report.
As of this writing, the stock is still halted.
We’ve now gone through the numbers in the draft release in detail. Assuming the numbers in the filing are accurate, we now know why the stock has tanked.
Importantly, the news may not be quite as bad as some investors initially feared. Although Google’s core business modestly missed expectations, it was Motorola that was the bigger problem.
(The stock is not tanking because the earnings leaked early. If the earnings were good, the market would ignore that.)
Here’s why the stock tanked:
- Google badly missed consensus estimates for net revenue and earnings.
- The miss was primarily due to a revenue shortfall.
- Importantly, most of the miss came from Motorola, not from Google’s core business. This is actually good news (You would have to be pie-eyed to think that Google could acquire a massive dying business it knew nothing about and fix it in a couple of quarters.)
- Google’s core business delivered $11.4 billion in gross revenue versus expectations of $11.5 billion. Net revenue was $8.8 billion versus expectations of $8.9 billion. That’s a small miss.
- Google’s core adjusted operating profit was $3.95 billion versus expectations of $4.1 billion. Again, a miss, but a small one.
- The modest miss in Google’s core business came from an unexpectedly rapid drop in price-per-click. The growth of paid clicks was in line with expectations (+33%), but per-click pricing dropped faster than expected (-15%).
- Motorola’s mobile business, meanwhile, generated only $1.78 billion of revenue versus consensus of $2 billion.
- Motorola’s “Home” business (cable boxes) generated $797 million of revenue versus consensus of $880.
- Motorola’s adjusted operating loss was a lousy -$151 million, versus consensus of -$25 million.
So, there’s actually some good news in here.
Most of the disappointment came from a business that was almost certain to disappoint–the dying elephant known as Motorola.
Google’s core business, meanwhile, came in just below expectations.
(Thanks to Citi’s excellent Internet analyst Mark Mahaney, whose earnings preview note provided the consensus numbers here.)