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Google's stock drops sharply, erasing $20 billion in shareholder wealth

SAN FRANCISCO — As far as unpleasant surprises go, Google hit Wall Street with a double whammy Thursday.

The Internet search leader that prides itself on organizing the world's information lost control of its own data when a contractor released its third-quarter earnings report more than three hours before the numbers were supposed to come out.

As if that weren't jarring enough, the numbers alarmed investors because the company's earnings and revenue fell well below analysts' projections. The disappointment triggered an 8 percent drop in Google's stock price that erased about $20 billion in shareholder wealth.

"This is a monumental failure of epic proportions," said Michael Robinson, an executive vice president for the Levick Strategic Communications, which specializes in financial crisis management. "This was bad news compounded by bad process. It came out in the worst way possible."

Google earned $2.18 billion during the three months ending in September, down 20 percent from net income of $2.73 billion in the year-earlier period. Revenue climbed 45 percent from last year to $14.1 billion.

Google blamed printer R.R. Donnelley & Sons for filing the company's quarterly statement with the Securities and Exchange Commission more than three hours ahead of schedule.

"We are fully engaged in an investigation to determine how this event took place and are pursuing our first obligation, which is to serve our valued customer," R.R. Donnelley said in a statement.

Google's stock initially plunged more than 9 percent after the early release of the results. Trading was then suspended to allow more time for the information to be digested. After a nearly three-hour break, investors decided the results weren't quite as bad as they initially appeared, and the shares recovered slightly.

Even so, the stock wound up dropping $60.49, or 8 percent, to close at $695.

The selloff reflects a reversal of the optimistic sentiment that had propelled Google's stock to an all-time high earlier this month. The stock had surged 27 percent in the three months before Thursday's unsettling developments.

Most of the trouble appeared to be concentrated in Motorola Mobility, the struggling cellphone maker that Google bought for $12.4 billion in May. Analysts have been fretting that Motorola Mobility would turn into a financial albatross, and some of those fears appeared to be realized in the latest quarter.

The device maker suffered an operating loss of $527 million, more than tripling from the same time last year when it was still an independent company.

But there were also some worrisome signs in Google's main business of selling online advertising.

Google's ad revenue rose 16 percent from the same time last year, the slowest pace of growth in three years. As has been the case for the past year, the average prices companies pay Google for ads appearing alongside search results also fell.

The decelerating growth in ad revenue is likely being driven by the growing use of smartphones and tablet computers to access the Internet. The ads are more difficult to see on smartphones, in particular, so marketers aren't willing to pay as much for those commercial messages as they do for ads that are seen by people on personal computers.

Google's stock drops sharply, erasing $20 billion in shareholder wealth 10/18/12 [Last modified: Thursday, October 18, 2012 11:02pm]

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