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Google's Grim Earnings, After Premature Post

Business is good, but Google earnings dropped 20% compared to a year ago because of Motorola division.

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Google stock fell off a fiscal cliff on Thursday, dropping more than 9% when the company's third-quarter 2012 earning report was released prematurely. Trading in Google shares, which opened at $755.54, was subsequently halted at $687.30.

Google blamed the snafu on the company it uses to print its financial documents. "Earlier this morning RR Donnelley, the financial printer, informed us that they had filed our draft 8K earnings statement without authorization," a company spokeswoman explained in an emailed statement. "We have ceased trading on NASDAQ while we work to finalize the document. Once it's finalized we will release our earnings, resume trading on NASDAQ and hold our earnings call as normal at 1:30 Pacific Time."

Google reported $14.10 billion in revenue for the quarter that concluded on Sept. 30, 2012, an increase of 45% from the same period in 2011. But it was the company's earnings per share, $9.03 (non-GAAP), that spooked investors. A Thomson Reuters poll put analyst expectations at $10.65. Wells Fargo Securities had anticipated $9.93 per share.

Overall, earnings declined 20% from a year ago. GAAP net income for the third quarter of 2012 was $2.18 billion. In the third quarter of 2011, it was $2.73 billion. Google's Motorola Mobility division accounted for much of the loss: $527 million, reflecting a 20% decline in revenues (GAAP).

The draft earnings report included the placeholder text "PENDING LARRY QUOTE," which was supposed to be replaced with a comment from CEO Larry Page prior to publication. In Google's final release, posted around 1 p.m. Pacific Time, Page made no mention of the inadvertent earnings release or of the negative reaction from investors. The quarter, he insisted, was "strong." When trading resumed shortly before the market close, Google shares bounced back a bit.

[ Read Google Cuts 4,000 Motorola Mobility Jobs. ]

On the company's call for investors, Page, his voice still hoarse from the undisclosed condition that has kept him from speaking publicly in recent months, apologized "for the scramble" earlier in the day.

Google also had problems with the inadvertent release of information at a press event held in the morning to introduce its latest Samsung Chromebook: The company posted details about the new Chromebook prior to its intended 10:30 a.m. Pacific Time announcement time.

"We had a strong quarter and I'm really happy with our business," Page declared on the conference call, noting that Google is "super-well placed" to take advantage of the movement from single-screen desktop computing to a mobile, multi-screen world.

Page provided an update on Google's mobile ad revenue run rate as evidence of the company's growth potential. Last year, Google's run rate for mobile was $2.5 billion. This year, he said, it will be $8 billion. One reason this figure is so much higher is that Google has started including revenue from the sale of Google Play content and apps. Previously, Google was counting only mobile ad revenue.

Patrick Pichette, CFO of Google, attempted to address the financial burden of Motorola by pointing to the recentness of the acquisition. "We're really pleased with Motorola's progress in the first 150 days," he said, noting that Google had inherited a product pipeline that will take time to clear out.

Nikesh Aurora, Google's chief business officer, said, "Our enterprise business continues to thrive." He cited only a few examples of corporate customer wins and talked about the 20 million students now using Google Apps and the undisclosed number of enterprise organizations making use of Google+ services.

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