From unexplained rise to falling off a cliff: Google shares halted as bottom falls out of their business model

googlehalted

Google’s Q3 earnings report leaked out early today, resulting in a bloodbath for the stock, which fell 9% in the space of minutes, and causing trading on the shares to be halted.

The company reported a 20% drop in profits from last year, from $2.73 billion to $2.18 billion.

The company said it earned $9.03 a share vs the analysts consensus of $10.65.

Google is in the main an advertising company, and the  Average cost-per-click decreased 15% year-over-year and decreased 3% quarter-over-quarter, possibly as a result of the move to mobile of which the company is a huge proponent with the Android operating system, but which earn them hardly any money.

“The core business itself is slowing down,” said Colin Gillis, an analyst at BGC Partners LP.

The company’s Motorola revenue decreased 26% YoY to $2.58 billion, and lost $151 million, making their $12.4 billion purchase seem more and more a folly.

Analyst Piper Jaffray’s Gene Munster said:

“The miss appears to be on the core search side as Google sites revenue was up 2.5% q/q after being up an average of 8% q/q the past two years. CPC rates were down 15% y/y vs the Street at an 11.3% decline. An important takeaway is that the disappointment in CPCs will likely renew investor concern about mobile monetization. In the short term (through December), we now believe shares may be more range-bound between $650 and $700 while investors wait to see improvement in Q4.”

Google’s share price has risen nearly 30% over the last 3 months without any clear driver. It was believed they would not be affected by changes in the online advertising market.

The company recently briefly overtook Microsoft as the second most valuable tech company after Apple, but with a $23 billion difference in market cap at present this may have been extremely premature.

Via Barrons.com and Businessweek.com

Thanks Ben for the tip.

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