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Biz Break: Google growth is strong, but profit decline scares Wall Street [San Jose Mercury News](San Jose Mercury News (CA) Via Acquire Media NewsEdge) Oct. 16--Today: Google continues to grow, but profits declined in the third quarter, hurting the company's stock. Also: Netflix plummets along with other companies with disappointing quarterly reports. The Lead: Google drops as profits decline Google's gigantic Web advertising business continued strong growth in the third quarter and newer elements of the firm's business showed strength as well, but profits and sales still came in below Wall Street expectations Thursday. The Mountain View company reported earnings of $2.81 billion, or $4.09 a share, on total sales of $16.52 billion, representing a 20 percent gain in revenues but a 5.4 percent decline in profits from the same quarter last year. Analysts had expected Google to report sales of $16.6 billion, according to FactSet, and profits excluding some factors to hit $6.54 a share, with the actual figure coming in at $6.35. Despite missing analyst forecasts, Google advanced in all aspects of its business. Google's core advertising business mirrored the overall growth of 20 percent and provided more than two-thirds of the firm's revenue total, while sales from other sites in Google's ad network grew 9 percent. "The core of our business, performance advertising, continues to deliver great results," Omid Kordestani said in Thursday's conference call. Kordestani was officially named chief business officer at Google during the call, losing the interim tag he received after predecessor Nikesh Arora left for Softbank. Google's efforts outside of advertising experienced its biggest gains, growing 50 percent year-over-year. This grab bag of revenues includes revenues from Google Play and hardware sales, which could soon receive a boost from a refreshed lineup of Nexus products and new Android Lollipop operating system that Google announced Wednesday. Other efforts include the streaming-TV hardware Chromecast, which executives said Thursday had been used 400 million times; Google Fiber, high-speed Internet service which is expected to being taking sign-ups in its third city -- Austin, Texas -- before the end of the year; mobile payments service Google Wallet; and same-day delivery service Google Shopping Express, which Google is attempting to expand. "These are all areas where we're investing and we're investing with enthusiasm," Chief Financial Officer Patrick Pichette said in a conference call Thursday. Google's heavy investment seemed to be the biggest drag on profits, as the company increased its research and development spending, which Pichette credited to a boost in Google's workforce to more than 55,000 employees. "It's very clearly an extraordinary quarter from a hiring perspective," Pichette said, adding, "We have the result of a banner year -- It takes a year to hire them all, and it comes into this quarter." The increased spending's effect on Google profitability was a sticking point for analysts and investors: Google stock took a hit in after-hours trading, falling lower than $525 after closing with a 0.7 percent decline at $536.92. "It was a mixed quarter," JMP Securities analyst Ron Josey told The Wall Street Journal. "Most people will be focused on profitability, given that margins are contracting a little bit." SV150 market report: Earnings reports continue to hurt Silicon Valley Google's drop is not surprising after a raft of similar post-earnings declines in Silicon Valley this week, which contributed to yet another day of overall declines for Bay Area tech stocks on Wall Street. Netflix suffered the most stunning plunge of the young earnings season, losing 19.4 percent to close at $361.70 after joining eBay in announcing earnings Wednesday afternoon. Analysts cut targets, but many stayed significantly higher than Netflix's closing price; "Yes, the results and the guide were disappointing, but not THAT disappointing," RBC Capital Markets analyst Mark Mahaney wrote of the drastic drop in Netflix stock. eBay also suffered, declining 4.7 percent to $47.88, with analysts concerned about declining growth in the company's retail business ahead of a planned spinoff of PayPal, its fastest growing segment. Thursday's earnings reports didn't fare much better. Advanced Micro Devices spurred further concerns about the chip sector after the Sunnyvale semiconductor company announced it would lay off 7 percent of its staff and providing a disappointing forecast, just a week after changing CEOs. AMD shares dropped to less than $2.50 after closing with a 1.2 percent gain at $2.64. SanDisk stock fell almost 5 percent after the Milpitas flash-memory company reported income of $263 million, or $1.09 per share, on sales of $1.75 billion, a decline in profits from the same quarter a year ago. Apple failed to get a stock boost from its second launch event in less than a month, falling 1.3 percent to $96.26 after showing off new iPads and Macs at an event in Cupertino. Tesla Motors declined 1.5 percent to $226.35 after an analyst predicted that tis next offering, the Model X, could be delayed deeper into 2015; the Palo Alto electric car company is also facing a challenge to its sales structure in Michigan. Facebook dropped 0.8 percent to $72.63 after announcing a new feature that will allow users to check in after natural disasters, and Yahoo gained 0.8 percent to $38.12 while bringing on a new ad executive. Milpitas security company Fireye had the second largest percentage increase in the SV150, gaining 8.1 percent to $28.96, after an upgrade from JPMorgan. Up: SolarCity, Hewlett-Packard, Workday, Applied Materials, SunPower, Salesforce Down: Netflix, eBay, Twitter, EA, Oracle, Tesla, Intel, Apple The SV150 index of Silicon Valley's largest tech companies: Down 11.93, or 0.79 percent, to 1,489.98 The tech-heavy Nasdaq composite index: Up 2.07, or 0.05 percent, to 4,217.39 The blue chip Dow Jones industrial average: Down 24.5, or 0.15 percent, to 16,117.24 And the widely watched Standard & Poor's 500 index: Up 0.27, or 0.01 percent, to 1,862.76 Sign up for the 60-Second Business Break newsletter at www.siliconvalley.com. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510. ___ (c)2014 San Jose Mercury News (San Jose, Calif.) Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com Distributed by MCT Information Services |