Shares of Google plunged after the company's third-quarter results missed expectations of strong growth, and inadvertently were released well before the market's close.
Does Google's notable revenue and earnings miss spell trouble for the tech sector? Is this a buying opportunity in Google shares? Ken Sena, Evercore managing director, joins The News Hub to discuss. Photo: REUTERS. Among the litany of issues, the Internet search giant's profits slid 20% from a year earlier to $2.18 billion, or $6.53 a share. Revenue rose 45% to $14.1 billion, thanks to the incorporation of Google's new Motorola hardware unit. But revenue excluding Motorola slowed for the fourth consecutive quarter, dipping to a growth rate of 19% from rates of more than 20% for the past few quarters. At the same time, Motorola also revealed a bigger-than-expected operating loss. The weak results, coupled with their unexpectedly early release from financial printer R.R. Donnelley RRD -2.56% & Sons Co., wiped $22 billion off Google's market capitalization halfway through the day. Google's shares halted trading for a time before resuming.
Google shares tumbled after the company's Q3 earning slipped out prematurely. WSJ's John Letzing has details on Digits. Photo: Getty Images. As of the 4 p.m. market close, the shares had recovered slightly to end at $695, down $60.49, or about 8% for the day. Still, the stock drop was a reversal for Google, which had experienced a run-up in its shares in recent months. The company's market capitalization had recently pulled even with Microsoft Corp.MSFT +0.44% for the first time, fueled by perceived good news about its online-ad business and missteps from rivals such as Facebook Inc. FB +0.33% At the crux of Google's profit slide was the growth rate of its biggest and most profitable revenue engine: ads on its Web-search engine and video site YouTube. The growth rate of those ad sales has steadily dropped since mid-2011. In the latest quarter, sales of the ads rose 15%, but that was down from 39% growth a year ago. The growth rate for such ads fell not because advertisers were buying fewer of the ads—in fact, Google sold 33% more ads in the third quarter. But the average price paid by Web-search advertisers to Google per click dropped by 15% in the third quarter, Google said. The Early Earnings Release
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Driving the declining prices for the ads was the shift by advertisers toward mobile ads, analysts said. That change is hurting Google in the short term because mobile ads cost less than online ads viewed on desktop computers. Some industry experts, however, predict the price differential will be minimal by the end of next year. Other Web companies are also grappling with the shift to mobile ads. Facebook, which reports earnings next week, has been racing to offer more mobile ad formats after earlier focusing more on online ads viewed on PCs. Google also faces toughening competition in its core search market, which also has a knock-on effect on its search ads. People may be doing some of the most valuable type of Web searches—those that relate to shopping—on sites like Amazon.com Inc.AMZN +0.82% rather than on Google, said Sameet Sinha, a stock analyst at B. Riley & Co. Advertisers generally are happy with Google. But Microsoft Corp.'s Bing search engine, which also powers Yahoo YHOO +1.51% Search, has been capturing market share over the past year, according to Aaron Goldman, chief marketing officer of Kenshoo Ltd., which helps companies...