The market’s win streak was halted at three on Thursday, thanks in large part to the surprising earnings event that transpired spontaneously around lunch time. Google (NASDAQ:GOOG) was set to report earnings after the close yesterday, but allegedly had its earnings leaked by financial printing company R.R. Donnelley (NYSE:RRD). And the report was not pretty. GOOG missed on the top and bottom lines, triggering a 10% sell-off in the stock before it was halted by the Nasdaq about an hour later. GOOG bounced slightly after being unhalted at 3:20ET, but still finished the day down 8%.
Given the turmoil we saw in the market yesterday, you may think we finished with heavy losses in the indices, but the damage was nothing to panic about. The Nasdaq was obviously the weakest index, finishing down 1%, but the Dow and S&P finished the day down only 0.06% and 0.24% respectively.
Google issued a statement later in the day regarding the premature release: “Earlier this morning R.R. Donnelley, the financial printer, informed us that they had filed our draft 8-K earnings statement without authorization,” the Google statement read. In the conference call later in the day, CEO Larry Page apologized for the mistake, saying “sorry for the scramble” on earnings. The filing was clearly release before it was intended, as it was complete with financial for the quarter but still contained text near the top that read “PENDING LARRY QUOTE.”
Perhaps even more concerning to investors is what the earnings report, which was later confirmed by GOOG, contained. GOOG reported adjusted EPS of $9.03 per share, well below consensus estimates of $10.65, pointing to higher costs as the main reason for the sizable miss. However, GOOG also missed on the top line, reporting revenues of $11.33 billion, which came in light of the $11.87 consensus estimate.
The average cost that advertisers paid per click on Google fell by 15% from a year earlier, continuing the downward trend the company has seen. The declining returns are the result of a shift to mobile computing, as Google does not receive as much money for advertisers with its mobile ads. This a trend that has concerned GOOG investors, and for that matter, investors in companies that are not handling the mobile-shift well. That group includes Facebook (NASDAQ:FB), which traded down 4.55% yesterday amid the GOOG debacle.
R.R. Donnelly files more than 100,000 documents with the SEC each year and errors of this magnitude are extremely rare. After GOOG issued its statement pointing to R.R. Donnelley, shares of the company initially tanked 5%, but it was able to recover into the close after reassuring other clients that their financial results would not be similarly compromised. R.R. Donnelly CEO Tom Quinlan, in comments to the WSJ, made the astute observation that if such leaks were commonplace with a company of RRD’s nature, they would certainly not be in business very long.
Apple’s (NASDAQ:AAPL) weakness yesterday was overshadowed by the GOOG situation, but the stock was already acting heavy prior that news. AAPL finished the day down 1.86% and looks ready to re-test its 100-day MA. The stock has been unable to sustain any more than a three-day bounce since breaking down from above $700 per share.
Microsoft (NASDAQ:MSFT) is also down more than 2% after hours following a lukewarm earnings report. The company beat on the bottom-line but missed on the top.
Yesterday we said the market needed rest, but bulls certainly did not want to see this type of erratic action. However, when it’s all said and done, the damage was minimal the rally appears to be intact for now. The narrative of a weak earnings season is starting to play out, though, and it will be key to see whether it claims any more high-profile victims.
By John Darsie
Disclosure: Scott Redler has no positions