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Gigantic Google Goof

A gigantic Google goof coupled with bad financial news sent Google stock down nearly ten percent.  Trading on GOOG was halted for two and half hours. Part of the gigantic Google goof was the fact that its quarterly financial report was inadvertently released four hours early. R.R. Donnelley, the company that files reports with the SEC for Google and many other companies, admitted that somehow a draft filing document, waiting for comments from the Google CEO, was filed with the SEC four hours early. The gigantic Google goof not only drew down Google stock prices but those of other internet companies such as Facebook. The heart of the news is not, however, that someone filed a draft report a few hours early. It is that Google financials came in well below expectations. Profits at Google dropped a fifth for the third quarter despite a nearly fifty percent increase in gross revenues. How does a company greatly increase revenues and lose profits? That is the core of the gigantic Google goof.

When Do Companies File SEC Financials?

Companies typically file their quarterly financial reports with the Securities and Exchange Commission after the US markets have closed. This allows investors to digest the news before the next trading day. It helps avoid knee jerk responses based on panic when earnings of a big company fall by a fifth as in the current gigantic Google goof. However, losing a fifth of your earnings is not a technical glitch and, even if the filing had gone as scheduled, the result would likely have been an opening gap down for Google stock in response to poor earnings in the third quarter.

Why Did Google Profits Drop?

The move from desktop and lap top computers to mobile devices like Blackberries and iPhones has reduced profits for Google. Basically, mobile device ads make less money so the Google Pay Per Click business is suffering (off fifteen percent for the quarter in question). Part of this, however, is a matter of playing catch up. Programmers need to improve formatting and presentation on ads that appear on mobile devices. When that is accomplished, one can expect that Google will regain some of its lost revenue. In the meantime Google and Apple are at war over control of the mobile device world. To the extent that Apple successfully defends it patents against other device makers it may adversely affect Google which supports the Android platform. If Google loses badly in the patent wars could it be another gigantic Google goof and no longer a good stock investment?

How About Motorola Mobility?

The Google purchase of Motorola Mobility was for the Motorola treasure store of patents. However, the internet giant has had no better luck running the company than its former directors. Losses at the US cell phone maker were over $150 million in the quarter in question, much worse than expected and another aspect of the gigantic Google goof.

Buy When There Is Blood in the Streets

If you believe that the gigantic Google goof was basically human error in filing too early you may want to pick a few shares of GOOG while the price is down.  Fundamental analysis tells us that Google is a strong company with a good business plan and search market dominance. But, the world changes. The global economy is still unsteady despite an improving picture in the USA. Consumers may hold off on buying and using high end electronics affecting profits at both Google and Apple.

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