Google Misses Fourth Quarter 2011 EPS: Stock Down Nearly 10 Percent In After Hours Trading – Was It Panda Or Facebook Coming?

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Google Misses Fourth Quarter 2011 EPS: Stock Down Nearly 10 Percent In After Hours Trading – Was It Panda Or Facebook Coming?

Google’s stock is down roughly 10 percent in after hours trading after the company missed its earnings per share number.  Google’s EPS was expected to be 10.50 and the number came in at 9.50 which immediately sent the stock down by more than $55 dollars closing near $639 today but at $587 at 5:15 EST.   What caused Google to miss its estimates when the economy is getting better?  The search business made less money for Google and year over year as well as month over month CPC’s (cost per click) the money advertisers are willing to pay for a keyword that appears in search results went down by 8 percent.

Did Panda Bring Down Google’s Earnings?

It’s hard to imagine Google’s performance in 2011 without mentioning Panda which was a significant change to the company’s search engine algorithm.  If Panda was supposed to make search engine results better, the new associated search engine results from paid search should have been more robust and this would have been a boon for advertisers.  Many website owners complained that Panda in general was causing less important, less relevant websites to appear in search results and this may have caused a lower experience for users that negatively impacted search engine CPCs for paid results. These complaints have dwindled in recent weeks and the recalibration of search ranking results due to the algorithm change are occurring with each new update.

Did Facebook take some of Google’s CPC earnings?

Yes.  Facebook is getting a piece of the display and advertising business that would have belonged to Google.  Facebook advertising revenue is increasing and although the numbers aren’t released, estimates show that Facebook is rising as an internet advertising portal – see figures here.  Facebook will be launching an IPO this year and investors could be getting ready to diversify their internet portal portfolios.  A slip in earnings from Google may have been one reason investors decided to keep cash on hand for Facebook’s coming IPO if they believe the Google story is less attractive in the short run.

Google is down but by no means out.  The growth of Google+ and the inclusion of the social media platform in its ad network may help Google buttress some of the effects of Facebook’s domination in the social networking landscape.  Google+ is growing fast and the possibilities for generating ad revenue from it are still unknown while the company expands with Android.

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