Executives from the search advertising company blamed a higher than anticipated tax rate for most of the gap between its actual earnings and annual estimates, but some now claim taxes were only responsible for half of that difference.
Google missed earnings expectations by 22 cents per share, a miss that CFO George Reyes attributed to a higher tax rate than the company expected to see.
Investors have responded by hitting the Sell icon in their online trading software. Shares of Google in intraday trading on February 3rd now hover around $382.80, $13.24 off its open.
The Wall Street Journal has called out Google on its tax claim, citing some additional numbers that may indicate its loss wasn’t entirely due to taxes:
Google recorded about $2.14 billion in pretax profit for the year. Applying Google’s prior estimate of a 30% effective tax rate to that gets a tax bill of $642.6 million. Google had an actual tax provision of $676.3 million for the year (resulting in that 31.6% effective tax rate), the upshot being that the company paid $33.7 million more in taxes than it expected.
And $33.7 million — a figure all attributable to the fourth quarter — equates to only 11 cents a share, using Google’s diluted share count of about 304 million.
The Journal further cited Stifel Nicolaus analyst Scott Devitt, who confirmed the conclusion while using different figures from Google’s financials. He said Google “is off base in blaming most or all of its shortfall on the tax issue.”
Devitt and a Standard & Poor’s analyst, Scott Kessler, called for their clients to sell Google on January 18th. Both noted concerns going forward with Google stock.
The Journal continued by noting how Google said “its characterization of the tax issue as responsible for most of the miss was based on analysts’ estimates, many of which had assumed a tax rate of around 30% for the fourth quarter.” Reyes reported the actual rate was 41.8 percent.
Those projections seem to have reinforced Kessler’s view that it’s time to sell Google, as the Journal closed the piece with an observation from the analyst:
But such an assumption also says something about Google’s ability to project how its expenses should be allocated. The matter is “indicative of the company’s ability to effectively plan and evaluate,” says Scott Kessler, an analyst for Standard & Poor’s, who has a sell rating on Google.
Another opinion suggested in confidence to Murdok was that Google might be experiencing some softening in its click-through rates. The source noted Google displays far more ads on the right side of the search result pages than it used to do, and that could indicate some desperation to get more people to click.
Google has also been pushing out more helpful hints to its network of site publishers on optimizing AdSense.
The company earns far less revenue from its AdSense publishers than from ads displayed on Google sites. Fourth quarter revenue from Google sites was $1.098 billion, while the Google Network of third-party sites returned $799 million.
Any improvements its Network could make in displaying the most optimal ads possible would benefit those publishers and Google too.
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David Utter is a staff writer for Murdok covering technology and business.
