Google made the news tonight for all the wrong reasons. Firstly when their printer inadvertently issuing their Q3 results hours too early and when NASDAQ was still in session. Secondly by issuing results that were well below expectations. If you had read the media this morning they all expected a strong set of results. Indeed, Google shares had been on a roll – up 30% in just a few months. But these results meant Google ended the day down 8% when trading resumed. Google matters, of course, because like Apple it makes up a significant chunk of the tech indices.
Although Google's headline revenues grew by an impressive 45% to $14.1b in Q3, if you strip out third party acquisition costs, the underlying growth was 'just' 17% yoy. Profits fell 20% to $2.18b. It doesn’t take too much brainpower to work out that Google costs are running wild.
Google had two main problem areas. Motorola, which Google purchased for $12.5b in May 12, came in with revenues of $2.58b compared with analyst forecasts of $2.94b. Given the pain elsewhere in the mobile market (Nokia had some pretty appalling results today too – a quarterly loss of nearly Euro1bn on revenues down 19%) perhaps that ‘miss’ was forgivable. But what really spooked was the 15% yoy and 3% qoq decline in advertising ‘cost per click’. You see Google is suffering the same problems as Facebook (down nearly 5% on the Google news) in struggling with lower revenues as users move to mobile. Indeed, all the current analyses seems to show that the move to mobile is EVEN faster than expected. Google said that annualised revenues from mobile was now $8b – compared with $2.5b a year back. That’s a pretty stunning change.
My own view is that the reaction to Google’s results today were somewhat kneejerk. We have a marketplace in acute change. Google is on top of those changes buying Motorola for its 18,000 patents and investing heavily to ensure it keeps up with – if not gets ahead – of the ‘switch to mobile’ game. Main competitor Apple shares are also down 10% over the last few weeks but still showing a massive 56% gain YTD. Even after today’s ‘correction’ Google are still up 24% since their June 12 low.