The Google Fiasco

Title: "Shares Fall Sharply as Google Earnings Are Released Early"
Date: October 18, 2012
Source: The New York Times
Link: http://www.nytimes.com/2012/10/19/technology/google-shares-drop-after-earnings-disappoint.html?pagewanted=all&_r=0

As everyone probably read or saw this afternoon, Google flubbed their earnings release after it was mistakenly released a few hours before the scheduled 4:30 PM release. While the mistake certainly added to the drama, the bigger story was Google's disappointing quarter. Putting aside the Motorola acquisition, a major contributor to Google's weak earnings this quarter, the other question is how healthy is their core business - search advertising. Google remains the leader in search advertising - enjoying a 75 percent market share  - and is now the leader both other forms of digital advertising, display and mobile. However, the average cost per click decreased 3 percent from last quarter and 15 percent from last year, in part because of the growth of mobile ads which usually cost less. The issue for a decline in cost per click can be attributed to the lack of competition for the mobile ad space, and since their ads are sold by auction, the result is lower prices. Why is there little competition in mobile ads given that the consensus among tech analysts is that mobile is the future?

The reason, in part, is that advertisers are having trouble figuring out how to use mobile ads effectively. Consumer behavior is different on mobile - they're mainly browsing stores vs. making an actual purchase like they would on a desktop - and on a desktop, they're more likely to click an ad. It's also complicated to accurately measure consumer behavior on a mobile and gain an accurate understanding of mobile ads effectiveness at generating sales.

Nevertheless, Google has enjoyed several years of growth in their stock price, and many argue that the decline following today's earnings release was simply a market correction/profit taking from those who believed Google's stock price had peaked. While the Motorola deal remains a concern for Google going forward, their core business remains strong and well positioned for better 4th quarter, especially with the holiday season approaching. Where else would you go to buy Christmas presents anyway? An actual store?!?!

PS - As a result of today's decline in Google's stock price, CEO Larry Page's net worth fell more than $1.5 billion...hope somebody bought him a beer.