Google Inc’s share price took a battering yesterday, after the company revealed that a fourth-quarter tax surprise caused it to miss earnings targets by a mile.
Having closed at $432, the stock crashed through the $400 mark in after-hours trading, and was selling for between $350 and $370 in the hours following the announcement.
Analysts polled by Thomson First Call on average had expected the search advertising firm to report non-GAAP earnings per share of $1.76, but that line came in at $1.54.
For the three months ended December 31, Google reported GAAP net income up 82% at $372.2m, on revenue that was up 86% at $1.92bn.
While these are undoubtedly healthy growth figures, investors have become accustomed to pleasant earnings surprises each quarter since Google went public.
The earnings per share miss was largely due to the tax rate, which came in at over 41% for the quarter, compared to Google’s earlier prediction of 30%.
Most of the miss was related to the tax impact, CFO George Reyes acknowledged in a conference call with analysts.
Because the proportion of total expenses allocated to our international operations was greater than we anticipated, more of our profits were taxed at a higher domestic tax rate, the company said in a statement.
International revenue was also partly blamed, with the UK having a bit of seasonal slowness over Christmas, and a strengthening dollar having an impact on currency conversion.
Other underlying business metrics looked good. Traffic acquisition costs, the share of ad revenue given to publishers, was 33.2% of revenue, compared to 34% in the third quarter.
This was attributed to the fact that more revenue came from Google’s own network of sites, rather than its partners’ sites. Google network revenue was up 24% sequentially and represented 57% of the total, while partner-generated revenue was up 18%.