Google earned a $9.03 per share profit before certain expenses, far below the $10.63 Wall Street consensus estimate, and down 20% from a year ago. GAAP profit was $6.53. Net revenues after paying partners for traffic were $11.53 billion, up 19% from a year ago. That also missed the Street’s estimate of $11.9 billion. Paid clicks, a key indicator, rose 33% from a year ago, and cost per click, another key measure but one whose meaning is murky, fell 15%.
So what happened? Here’s a quick assessment, which will be supplemented in a new post following the 1:30 p.m. Pacific earnings call:
* Costs jumped. They were up 71%, to $11.4 billion. It appears much of that increase came from Motorola Mobility, which Google acquired for $12.5 billion in May. After all, the acquisition added more than 20,000 employees. As Citi analyst Mark Mahaney said in a note to investors: “Bottom line divergence partly due to Amortization expenses, which came in at $317MM vs. our $197MM estimate. That contributed perhaps $0.40 of the EPS shortfall.”
* Motorola losses were huge. The unit posted a $527 million loss on a GAAP operating basis. Mahaney again: ”Another major delta was Motorola, which generated $151MM Op Loss vs. our $28MM estimate.”
* Ad revenue didn’t set records. It was up 16% from a year ago. Although lower cost per click isn’t always an indicator of a problem, in this case, the fourth consecutive decline has investors wondering anew if it’s due to the lower prices mobile ads get or even competition from the likes of Facebook.
Piper Jaffray analyst Gene Munster said in a note to investors that the core search business appeared to be the main culprit in the earnings miss: “Google sites revenue was up 2.5% q/q after being up an average of 8% q/q the past two years.” Added Mahaney: “We think the continued decline in CPCs is due to the impact of Ads Quality changes as well as due to increased Mobile queries.”
However, Mahaney and others say the shortfall from expectations, at least in Google’s core business was very small. So blame most of the problem on Motorola–no surprise there.
As for that early release? Google blamed its financial printer R.R. Donnelley for the early release, which was clearly a mistake, since the release includes the phrase “Pending Larry Quote,” in apparent reference to a planned quote from CEO Larry Page.
