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A printer's error cost Google US$22 billion

Charles Arthur (via SMH) | Oct. 19, 2012
Google's $22bn results blunder

It was the printer's error that wiped $US22 billion from the value of the world's biggest search engine. Shares in Google were suspended on Thursday afternoon in the United States after an accidental email to the US stock market authorities revealed that the company's latest quarterly results were far below Wall Street's demanding expectations.

The inadvertent – and clearly unfinished – financial release began with the words "PENDING LARRY QUOTE" – referring to the company's chief executive, Larry Page, whose job, normally, would be to put the best gloss on the financial figures. But he was likely to be offering different sentiments after the stock tumbled 9 per cent before trading was halted.

Company results circulate internally for several days as they are being prepared for public release to strict timetables, normally under strict secrecy. Leaks of the figures are extremely rare, but on this occasion Google tersely blamed financial printers RR Donnelly for filing its draft third quarter results "without authorisation".

Compounding the situation was the fact that Google's figures missed expected profits and a showed a big slowdown in revenue growth for its main search engine advertising business. The company had little choice but to suspend trading in its nosediving shares.

The surprisingly poor figures also point towards the challenging future that has already hobbled Facebook's stock after its dismal flotation earlier this year: the problem of making money from mobile advertising as users shift from the desktop to the smartphone to do their searching.

The figures showed that Google earned $US9.03 per share in the third quarter – notably below analysts' consensus estimates of $US10.63. Its search engine revenues were also below expectations, hitting $US11.5 billion where analysts had expected it to show $US11.9 billion.

Nevertheless, even Google's misfiring revenues showed 19 per cent growth from the same period last year. But, critically, that was a substantial slowing for a business that had consistently shown revenue growth since the end of 2009, when the global financial crisis was at its deepest.

A key reason for the revenue and profit miss seemed to be a fall in "cost per click" – the amount that advertisers pay when people click on Google's adverts. Google said that such revenues fell by 15 per cent year on year and by 3 per cent compared with the second quarter, even while the number of "paid clicks" grew 33 per cent year on year.

Advertising rates for mobile phone advertising are typically lower than on desktop computers - rates that are in turn lower than for printed media. At the same time, as noted by Ben Schachter from Macquarie Securities, people used search engines less for the first time since anybody began tracking data showing their use - because people are discovering new content via apps on iPhones and other smart devices. That also suggests that the widespread shift to mobile use which has affected Facebook's prospects is starting to affect Google too.


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