Google Earnings Review: Profitability Weakens Again

Google reported QE September 2012 financial results on October 18

I repeat, this isn't the Google that Granny used to talk about. Things have changed significantly. That is, Google fundamentals have changed with the acquisition and merger of Motorola in Q2 2012 (Fundamentals Change With Motorola Acquisition). Motorola is negatively affecting financial performance. Google's core business is not as profitable and therefore is also negatively affecting financial performance.



Both the revenue mix and margin mix have changed and hence the uncertainty about Google's operations. This will continue negatively impacting the bottom line, net income and earnings per share, at least for the short-term. The top line revenues surge upwards with no positive bottom line impact. The long-term impact is the uncertainty.

The 3rd and 4th calendar quarters can be the strongest for Google on an annual cyclical basis. The solid gains in net income and earnings per share were not reported year over year as expected. That leaves next quarter, the Holiday Q4, for a rebound. Holiday Q4 should be stronger than the current Q3, but the annual surge in earnings per share may not follow suit.



Revenue growth, year over year, had previously slowed but the Motorola acquisition reversed the trend significantly to the upside. Yet this has not mattered with regards to net income nor earnings per share. Consolidated margins decreased significantly, caused mostly by Motorola but to some extent by core operations. Net income and operating income continue decreasing on record revenues, the result of the gross profit margin, then operating margin, then net margin dropping to multi-year lows.



And finally we arrive at the earnings per share and ultimately GOOG stock prospects. The race and goal is to become the Anti-Apple with integration across software and hardware while continuing as an advertising company. Whether this can in fact be done, how long it will take, and if Apple's profitability levels can be reached are the 3 questions and uncertainties.



“We had a strong quarter. Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter,” said Larry Page, CEO of Google. “I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.”

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Google: Significant Motorola Restructuring Costs Ahead

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Google Warns of More Motorola Cuts, Revises Up Third-Quarter Bill

(Reuters) Google Inc revised up the bill for job cuts at its money-losing Motorola Mobility mobile phone unit in the third quarter and warned of further restructuring that may result in "significant" additional charges.

"Google raised its estimates for severance-related charges 9 percent to $300 million from $275 million and warned it faced another $40 million in other costs in the quarter to quit facilities and markets.

"Motorola has continued to refine its planned restructuring actions and now expects to broaden those actions to include additional geographic regions outside of the U.S.," the company said in a statement.

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Google Warns of 'Significant' Motorola Charges

(CNBC) Google said planned job cuts at its Motorola Mobility mobile phone unit will cost about $340 million in severance and other costs in the third quarter and it warned of further restructuring that may result in "significant" charges.

"Motorola has continued to refine its planned restructuring actions and now expects to broaden those actions to include additional geographic regions outside of the U.S.," the company said in a statement.

Google plans to shrink Motorola's operations in Asia by exiting unprofitable markets, abandoning low-end devices and focusing on a few models instead of dozens, the New York Times had reported earlier.

"Motorola continues to evaluate its plans and further restructuring actions may occur, which may cause Google to incur additional restructuring charges, some of which may be significant," the company said.

The Internet search giant said in August that it would cut 20 percent of the workforce at Motorola Mobility, which it bought for $12.5 billion last year, as it moves to make more smartphones and fewer simple mobiles.

By pairing Motorola's smartphone business with its Android software, Google may have a better chance of mounting a direct challenge to Apple's popular iPhone.

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