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Google Tells Investors To Moderate Their Earnings Expectations
Earlier today Google issued an accounting-related missive on its investor relations site that sought to correct a problem with financial analysts’ earnings estimates for the company. Google will be reporting Q4 revenue numbers on Tuesday next week.
Google is compelled to report revenues for the part of Motorola that it is selling (Motorola Home) separate from its general earnings. Here’s what Google said:
In accordance with U.S. generally accepted accounting principles (GAAP), an entity is required to present the results of a business to be disposed as discontinued operations if the business is clearly distinguishable from the rest of the entity and the entity will not have any significant continuing involvement in the operations of the business after the disposal. Results from discontinued operations are required to be presented separately from the results of continuing operations, below net income from continuing operations.
As the sale of the Home business meets the above U.S. GAAP criterion, we are required to present the Home results as discontinued operations in our consolidated statements of income. That means our net income for this quarter as well as for Q212 and Q312 will be split between our ongoing operations and the Home business.
Google added that most financial analysts apparently hadn’t realized or recognized the accounting issue in their estimates for Google’s Q4 earnings. According to AllThingsD the practical impact of this will be to reduce Google’s consolidated earnings by roughly $1 billion.
Consensus estimates for Google’s Q4 earnings are more than $12 billion. This change will likely reduce them quickly.
Last quarter Google’s earnings were mistakenly released early and investors reacted with disappointment. This time Google wanted to correctly set expectations so that the line-item accounting for Motorola Home didn’t take people by surprise and have a negative impact on Google shares accordingly.