Google Earnings Release: On Friday, Google Inc. (NASDAQ:GOOG) did something that you don’t see very often. The search engine powerhouse issued an advisory to Wall Street, getting word out that analyst estimates for fourth quarter financial results were flawed.
Before we take a closer look at what Google had to say about this on its investors relations page, let’s see what a recent article by Reuters had to say:
“The world’s No.1 search engine, which reports its quarterly results on Tuesday, said most analysts have not adjusted their estimates to reflect the pending $2.35 billion sale of the Motorola Home business.”
“The business must be presented separately from the results of Google’s continuing operations under U.S. accounting rules, Google Treasurer Brent Callinicos wrote in a post on Google’s investor relations Web page on Friday.”
Why is this so rare, you may be wondering? According to the same article by Reuters, Google Inc (NASDAQ:GOOG) is not in the habit of providing financial forecasts. Along with this, they have distanced the company from analysts with limited interaction over the years.
For an inside look at this situation, Raymond James analyst Aaron Kessler was interviewed by Reuters for the article:
“Raymond James analyst Aaron Kessler says his fourth-quarter net revenue estimate includes nearly $900 million from the Motorola Home business.”
Kessler was quoted as saying, “They’re saying that the headline number is going to be less than what most analysts have for Q4.”
Now that you have an idea of what is going on and how outsiders perceive this situation, let’s dive into the finer details of the official release from Google Inc (NASDAQ:GOOG) VP, Treasurer and Chief Accountant Brent Callinicos:
“In anticipation of our upcoming earnings release and given our pending Motorola Home sale announced in December 2012, we wanted to remind everyone about the related accounting treatment of this deal, known as “discontinued operations.” In short, financial results from Motorola Home will be presented as a separate line item in our 2012 consolidated statements of income. While this is a standard accounting treatment (more details below), people who follow our company may not be fully aware of how it impacts our financial reporting. For example, as of this writing, a majority of Wall Street analysts who cover Google have not reflected the Home business as discontinued operations in their estimates.”
“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. Note that assets and liabilities of the Home business will not be separated out from our other reported financial and operating measures, such as our consolidated cash flow and balance sheet as the Home business is not material to those measures.”
What are your thoughts on this rare advisory issued by Google?
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DISCLOSURE: I have no positions in any stock mentioned.
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