The search advertising company accidentally provided financial guidance to analysts before excising it from the presentation that was made available online.
Google does not provide financial guidance, a stance that has long irritated Wall Street investors. When notes accompanying a PowerPoint presentation given by the company to analysts became public, they were found to contain projections of $9.5 billion in revenue for Google in 2006.
Uh oh.
The company then had to scramble to file a Form 8-K with the Securities and Exchange Commission explaining itself. That filing showed what Google had disclosed on March 2nd in the presentation notes they later excised:
The initial posting inadvertently contained certain annotated comments not intended to be presented at Analyst Day, including the following statements:
“Our ads business for the moment is healthy and growing and we’re on a strong trajectory
• projected to grow from $6bn this year to $9.5bn next year based purely on trends in traffic and monetization growth.
But strong competitors are attempting to aggregate traffic
• AdSense margins will be squeezed in 2006 and beyond”;
“To really get down to brass tacks, we’re going to: Execute well on our core ads projects to help us exceed the $9.5bn target (and backfill any AdSense partner loss) and drive advertiser satisfaction”; and
“In terms of estimating [stock-based compensation] charges for 2006, there are two things to consider:
• The amount of the charge related to awards issued prior to 2006 AND the new awards that are issued throughout 2006
• The first part, the amount related to grants prior to 2006, is $342 mm”
The statements regarding $9.5 billion in 2006 ad revenue and AdSense margins were not speaker notes prepared for the Analyst Day presentation, and were inadvertently included in the Analyst Day slides.
Google said these statements were instead speaker notes prepared early in the fourth quarter of 2005 for an internal product strategy presentation; they should not be regarded as financial guidance. Also, the statement about AdSense margins “does not reflect Google’s current expectations.”
Those distinctions and the 8-K filing are important for disclosure reasons. Submitting the filing keeps the Google on the good side of the SEC’s Reg FD requirements for fair disclosure.
However, investors have punished Google in the stock market for the withdrawn projections. Shares of GOOG were down to $354.61, off the open by $9.84. This has happened despite those deleted figures being in line with Wall Street analyst expectations anyway.
Analysts cited by Dow Jones see the figures as a positive sign about Google’s business. But a couple of them cautioned the company to be more careful about this kind of misstep:
Goldman Sachs analyst Anthony Noto wrote that this and other recent “gaffes” don’t materially change its view on GOOG, but “we are worried that if the company is making mistakes on the ‘little things,’ it is challenging to be incredibly confident that critical things are being done well.”
Citigroup analyst Mark Mahaney kept his buy rating on the stock, but wrote the “pattern of financial miscommunications is challenging our enthusiasm for the shares.”
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David Utter is a staff writer for Murdok covering technology and business.
