Google Q3 results land with SEC early, miss big

Google Q3 results land with SEC early, miss big

Summary: UPDATED: Google spills the beans to the SEC a bit early---and disappoints across the board courtesy of Motorola Mobility's hefty loss.

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Google reported its third quarter earnings early to the Securities and Exchange Commission and missed estimates by a wide margin.

The company's press release was filed to the SEC early---usually this 8-K filing would land at the same time as the actual announcement, which was due after market close.

In any case, the results were a disappointment. The company reported third quarter earnings of $2.18 billion, or $6.53 a share, down from $2.73 billion a year ago. Revenue excluding traffic acquisition costs (TAC) was $11.33 billion with non-GAAP earnings of $9.03 a share. Wall Street was expecting third quarter earnings of $10.65 a share on revenue of $11.86 billion excluding TAC.

Analysts were worried about Google's cost per click (CPC) rates. Piper Jaffray analyst Gene Munster said:

The miss appears to be on the core search side as Google sites revenue was up 2.5% q/q after being up an average of 8% q/q the past two years. CPC rates were down 15% y/y vs the Street at an 11.3% decline. An important takeaway is that the disappointment in CPCs will likely renew investor concern about mobile monetization.

Motorola Mobility also appears to have weighed down Google's third quarter earnings. Motorola Mobility had an operating loss of $527 million under generally accepted accounting principles. The non-GAAP loss in the third quarter was $151 million. 

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Reaction to the earnings miss was swift. Google shares were down 9 percent before being halted. Google blamed RR Donnelly for filing the document early. Footnoted made the connection to printer RR Donnelly first. 

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It's unclear what Google is blaming for the shortfall. The release noted that it was "pending Larry (Page) quote."

By the numbers:

  • Google owned and operated sites were 67 percent of total revenue, up 15 percent a year ago.
  • Network revenue was 27 percent of Google sales in the third quarter, up 21 percent from a year ago.
  • International sales in the third quarter were 53 percent of the total revenue pie.
  • Cost per click fell 15 percent in third quarter from a year ago.
  • Revenue from Motorola Mobility was $2.58 billion in the third quarter. Analysts were expecting a weak quarter from Motorola.
  • R&D spending in the third quarter was $2 billion.
  • Google had 53,546 full-time employees (36,118 for Google and 17,428 for Motorola) as of Sept. 30, down from 54,604 full-timers as of June 30.

UPDATE: In the official earnings release issued by Google this afternoon, CEO Larry Page's quote was included. Here it is, in full:

We had a strong quarter. Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter. I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.

Additionally, Page made his first public remarks in months during the quarterly conference call on Thursday afternoon -- although whatever plagued him to miss Google I/O in June still appears to be affecting his health. Nevertheless, Page apologized for the "scramble this morning," adding that "the printers" issued the statement a bit too early.

Here is the original release that leaked earlier on Thursday:

EX-99.1 2 d426664dex991.htm PRESS RELEASE

Exhibit 99.1

Google Inc. Announces Third Quarter 2012 Results

MOUNTAIN VIEW, Calif. – October 18, 2012 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended September 30, 2012.

PENDING LARRY QUOTE

Q3 Financial Summary

Google Inc. reported consolidated revenues of $14.10 billion for the quarter ended September 30, 2012, an increase of 45% compared to the third quarter of 2011. Google Inc. reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2012, TAC totaled $2.77 billion, or 26% of advertising revenues.

Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.

 

   

GAAP operating income in the third quarter of 2012 was $2.74 billion, or 19% of revenues. This compares to GAAP operating income of $3.06 billion, or 31% of revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.80 billion, or 27% of revenues. This compares to non-GAAP operating income of $3.63 billion, or 37% of revenues, in the third quarter of 2011.

 

   

GAAP net income in the third quarter of 2012 was $2.18 billion, compared to $2.73 billion in the third quarter of 2011. Non-GAAP net income in the third quarter of 2012 was $3.01 billion, compared to $3.18 billion in the third quarter of 2011.

 

   

GAAP EPS in the third quarter of 2012 was $6.53 on 333 million diluted shares outstanding, compared to $8.33 in the third quarter of 2011 on 327 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2012 was $9.03, compared to $9.72 in the third quarter of 2011.

 

   

Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense, as well as restructuring and related charges recorded in our Motorola business. Non-GAAP net income and non-GAAP EPS exclude the expenses noted above, net of the related tax benefits. In the third quarter of 2012, the expense related to SBC and the related tax benefits were $715 million and $155 million compared to $571 million and $116 million in the third quarter of 2011. In the third quarter of 2012, restructuring and related charges recorded in our Motorola business were $349 million, and the related tax benefits were $76 million.

 


Q3 Financial Highlights

Revenues and other information – On a consolidated basis, Google Inc. revenues for the quarter ended September 30, 2012 was $14.10 billion, an increase of 45% compared to the third quarter of 2011.

 

   

Google Revenues (advertising and other) – Google revenues were $11.53 billion, or 82% of consolidated revenues, in the third quarter of 2012, representing a 19% increase over third quarter 2011 revenues of $9.72 billion.

 

   

Google Sites Revenues – Google-owned sites generated revenues of $7.73 billion, or 67% of total Google revenues, in the third quarter of 2012. This represents a 15% increase over third quarter 2011 Google sites revenues of $6.74 billion.

 

   

Google Network Revenues – Google’s partner sites generated revenues of $3.13 billion, or 27% of total Google revenues, in the third quarter of 2012. This represents a 21% increase from third quarter 2011 Google network revenues of $2.60 billion.

Google International Revenues – Google revenues from outside of the United States totaled $6.11 billion, representing 53% of total Google revenues in the third quarter of 2012, compared to 54% in the second quarter of 2012 and 55% in the third quarter of 2011.

Foreign Exchange Impact on Google Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2012 through the third quarter of 2012, our Google revenues in the third quarter of 2012 would have been $136 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2011 through the third quarter of 2012, our Google revenues in the third quarter of 2012 would have been $557 million higher.

 

   

Google revenues from the United Kingdom totaled $1.22 billion, representing 11% of Google revenues in the third quarter of 2012, compared to 11% in the third quarter of 2011.

 

   

In the third quarter of 2012, we recognized a benefit of $62 million to Google revenues through our foreign exchange risk management program, compared to $1 million in the third quarter of 2011.

Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 33% over the third quarter of 2011 and increased approximately 6% over the second quarter of 2012.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 15% over the third quarter of 2011 and decreased approximately 3% over the second quarter of 2012.

TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.77 billion in the third quarter of 2012, compared to $2.21 billion in the third quarter of 2011. TAC as a percentage of advertising revenues was 26% in the third quarter of 2012, compared to 24% in the third quarter of 2011.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.21 billion in the third quarter of 2012. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $556 million in the third quarter of 2012.

 


   

Motorola Revenues (hardware and other) – Motorola revenues were $2.58 billion ($1.78 billion from the mobile segment and $797 million from the home segment), or 18% of consolidated revenues in the third quarter of 2012.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs, increased to $3.78 billion, or 27% of revenues, in the third quarter of 2012, compared to $1.17 billion, or 12% of revenues, in the third quarter of 2011.

Operating Expenses – Operating expenses, other than cost of revenues, were $4.81 billion in the third quarter of 2012, or 34% of revenues, compared to $3.28 billion in the third quarter of 2011, or 34% of revenues.

Amortization Expenses – Amortization expenses of acquisition related intangible assets were $317 million for the third quarter of 2012, compared to $126 million in the third quarter of 2011. Of the $317 million, $182 million was as a result of the acquisition of Motorola, of which $109 million was allocated to Google and $73 million was allocated to Motorola.

Stock-Based Compensation (SBC) – In the third quarter of 2012, the total charge related to SBC was $762 million, of which $47 million was restructuring-related, compared to $571 million in the third quarter of 2011.

We currently estimate SBC charges for grants to employees prior to September 30, 2012 to be approximately $2.7 billion for 2012. This estimate does not include expenses to be recognized related to employee stock awards that are granted after September 30, 2012 or non-employee stock awards that have been or may be granted.

Operating Income – On a consolidated basis, GAAP operating income in the third quarter of 2012 was $2.74 billion, or 19% of revenues. This compares to GAAP operating income of $3.06 billion, or 31% of revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.80 billion, or 27% of revenues. This compares to non-GAAP operating income of $3.63 billion, or 37% of revenues, in the third quarter of 2011.

 

   

Google Operating Income – GAAP operating income for Google was $3.26 billion, or 28% of Google revenues, in the third quarter of 2012. This compares to GAAP operating income of $3.06 billion, or 31% of Google revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.95 billion, or 34% of Google revenues. This compares to non-GAAP operating income of $3.63 billion in the third quarter of 2011, or 37% of Google revenues.

 

   

Motorola Operating Loss – GAAP operating loss for Motorola was $527 million ($505 million for the mobile segment and $22 million for the home segment), or -20% of Motorola revenues in the third quarter of 2012. Non-GAAP operating loss for Motorola in the third quarter of 2012 was $151 million, or -6% of Motorola revenues.

Interest and Other Income, Net – Interest and other income, net, was $63 million in the third quarter of 2012, compared to $302 million in the third quarter of 2011.

Income Taxes – Our effective tax rate was 22% for the third quarter of 2012.

Net Income – GAAP net income in the third quarter of 2012 was $2.18 billion, compared to $2.73 billion in the third quarter of 2011. Non-GAAP net income was $3.01 billion in the third quarter of 2012, compared to $3.18 billion in the third quarter of 2011. GAAP EPS in the third quarter of 2012 was $6.53 on 333 million diluted shares outstanding, compared to $8.33 in the third quarter of 2011 on 327 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2012 was $9.03, compared to $9.72 in the third quarter of 2011.

 


Cash Flow and Capital Expenditures – Net cash provided by operating activities in the third quarter of 2012 totaled $4.0 billion, compared to $3.95 billion in the third quarter of 2011. In the third quarter of 2012, capital expenditures were $872 million, the majority of which was for production equipment and facilities-related purchases. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the third quarter of 2012, free cash flow was $3.13 billion.

We expect to continue to make significant capital expenditures.

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

Cash – As of September 30, 2012, cash, cash equivalents, and short-term marketable securities were $45.7 billion.

Headcount – On a worldwide basis, we employed 53,546 full-time employees (36,118 in our Google business and 17,428 in our Motorola business) as of September 30, 2012, compared to 54,604 full-time employees as of June 30, 2012.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s third quarter 2012 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

Topics: Google, Android, Tech Industry

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13 comments
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  • Google cant dump those moto employees fast enough.

    Gotta cut their losses in a big way. They also have big legal bills and huge ip settlement fees on the horizon from moto so dumping as much of moto as fast as possilble will probably be a big priority. Not to mention the huge future write down for way overpaying for it to begin with.
    Johnny Vegas
    • That bizarre pre-Q3 vertical rise is a warning sign already

      Any time a stock goes up vertical you do one thing: take profit. What goes vertical up will come vertical down.
      LBiege
    • What about Windows 8?

      What will happen when Windows 8 shifts users increasingly from the browser, towards apps? This will mean Google's staple of browser revenue will quickly decline. Things aren't looking so good for Google.
      P. Douglas
  • Given I expect an AAPL miss as well, sounds like a buying spree

    Is in order. Both Apple and Google have sold foundations and are posed for future growth.
    Bruizer
  • The US stock market sucks

    Sorry but this living and dying by the quarter is silly. I'm not a big Google fan at all but come on, they are obviously investing in the future and that means future profits, not an immediate (quarterly) income.

    Myself, I invest in the long term and at the end of the day I do better than the guys that trade stocks like they change underwear.
    NoAxToGrind
    • that's just a blip

      caused by some M$ mole that keyed in false figures or some error in M$ excell spreadsheet.
      LlNUX Geek
      • Are you for real?

        For fuck sake, shut the fuck up! And please don't drag the Linux name down with you - change it.
        winux_sap
  • Wow. 22% drop in profits

    Can't believe they didn't warn. Is the stock still halted?

    Bigtime lawsuits coming, I suspect.
    pdq
    • "The Google earnings disaster":

      "From the WSJ's Jacob Bunge: "When Google shares tanked upon surprise midday release of quarterly results, it proved too fast for individual investors who had buy orders lodged for the stock below its pre-earnings price--and who suddenly found themselves holding stock as the price fell further, before being halted at $687.39. "We have clients jumping up and down right now," says one brokerage official."

      http://blogs.wsj.com/corporate-intelligence/2012/10/18/live-the-google-earnings-disaster/?mod=yahoo_hs
      pdq
  • I feel so sorry for the daytraders and jp morgans of the world ... not

    high frequency trading is against normal price discovery in the market.
    Hopefully there are a bunch of CDS-investors with bloody noses right now. Serve them right. Short term (nanosecond) investments are just thievery, stealing from on everyone else.

    With any luck, these parasites just got wiped out.

    Google is still a great long term investment.
    stevey_d
    • Could it get worse?

      Skynet is here, it's the server farm(s) doing nanosecond trades.

      Machines making trades second by second.
      Humans thinking only as far into the future as they have to to maximize their profits,

      Is there no long term thinking left?

      Use to be someone would start a company thinking of it as a legacy to leave their children,

      Now companies are started with the intent of selling them off to a venture capitalist ASAP.

      "Long term" use to be till the end of civilization, now long term is the next quarter.

      Next week ... today.

      Skynet is here, it's the server farm(s) doing nanosecond trades.
      Rob Berman
  • Google Inc. reported

    consolidated revenues of $14.10 billion for the quarter ended September 30, 2012, an increase of 45% compared to the third quarter of 2011. Google Inc. reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2012, TAC totaled $2.77 billion, or 26% of advertising revenues.

    Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.
    harreymartin