Google unexpectedly released their earnings report early today. It was supposed to go out after the closing bell and now we know why. It is surprising that the report was released early and Wall Street’s reaction proves it. Google was expected to post earnings of $10.65 per share on $11.86 billion in revenue. However, the report released during midday trading showed $9.03 on $11.33 billion. The news has caused Google stock (GOOG) to fall to $687.30 per share (as of this writing), which is a fall of $68.19 or 9.03%. Investors had high expectations for the technology giant after their stock hit an all time high last month and was not projected to slow down any time soon.
This news about the earnings is an indicator about several areas that Google is struggling in. The soaring prices were attributed to the increased ad revenue, success of Android and purchase/streamline of Motorola’s mobile division. While each of those areas are performing well, Android only accounts for less than $3 billion per years which is a small percentage of Google’s overall income. The fact that Android is the world’s most used mobile operating system with such a low percentage of Google’s overall income has worried investors. The potential changes that Google will have to make to Android in working with multiple third-party handset makers after the Samsung/Apple lawsuit could increase costs and lower revenue further. Google’s Android is already projected to earn only 2.5% of Apple’s iPhone this year, as broken down by Asymco.
In the time it took to write this (15 minutes), the stock has moved up a bit to $687.39. A mere 9 cents is not enough to indicate a recovery or even a stabilization, but there are still several hours in the trading day. This is not an indication of a long-term problem for Google, but it is a wake up call. They will have to pay careful attention to the future of their products and clearly define their strategy. For so long, they had a devil may care attitude as they were the only one on the block. Now that investors, customers and regulators are paying attention, they need better definition to their own rules and roles.
A change in the way the usage of Android is handled between them and third-party handset manufacturers is the first step to increasing the revenue of that product. Tightly controlling that usage policy will help provide a consistent user experience and reduce existing fragmentation within the platform.
Numbers do not lie. Google made less money on less money than anticipated and Wall Street has spoken. The share price before today may have been inflated with confidence and today’s events are surely a wake up call as things are put back into perspective.