Google earnings expectations create overnight confusion

Whether Google exceeded or missed earnings expectations for its third quarter remained unclear until mid-morning Friday.

Google reported a pro-forma net income figure of $125 million, $0.45 per share, in its earnings report press release Thursday afternoon, which at the time and until mid-morning Friday Thomson First Call said compared to its $0.56 per share consensus estimate based on a poll of 18 financial analysts. That Google pro-forma figure excluded certain one-time items.

That would mean Google missed earnings expectations widely by $0.11 per share.

However, during the conference call with analysts Google executives held Thursday to discuss its results, Google chief financial officer George Reyes told an analyst who questioned whether the pro-forma earnings per share figure should in fact have been $0.70, that he was correct.

In that case, Mountain View, California-based Google then would top earnings expectations by $0.14 per share.

This morning, Thomson First Call was sticking to its original $0.45 per share vs. $0.56 per share comparison, which had Google missing estimates, but revised its position after contacting analysts again in light of the $0.70 per share figure Google responded to during the conference call.

“As far as the confusion on the quarter, it’s really been set up by the company in their press release recording a non-GAAP number of 45 cents but then in the conference call giving an additional number excluding stock-based compensation,” said David Dropsey, a Thomson First Call research analyst, in an interview before the company officially reversed its earlier position.

At the same time, any news outlets that reported prior to mid-morning Friday that Thomson First Call’s consensus estimate of $0.56 per share was comparable to the $0.70 per share number were jumping the gun, he said. Until around 10 a.m. EST, Thomson First Call stuck to its original comparison, because the $0.70 per share number just came up during the conference call and wasn’t in the official company press release, he said.

Thomson First Call received several queries regarding the Google confusion Friday. “Obviously it’s a high profile company,” Dropsey said.

Google has adopted as a policy not to provide financial guidance to financial analysts. This led to estimates that varied widely, ahead of the earnings report Thursday.

Interestingly, the $0.70 per share pro-forma net income number would apparently have remained unmentioned had the question about the stock-based compensation not been asked. The $0.70 per share figure is not directly addressed in the company’s press release, nor did any of the top Google executives on the conference call mention it during the expository part of the call, when each got a chance to give his take on the financial report before moving on to the question-and-answer period.

It was well into the question-and-answer session when analyst Jordan Rohan of Soundview Research asked whether the pro-forma net income figure provided by Google of $0.45 per share would increase to $0.70 per share if a $68 million charge in non-cash stock-based compensation were excluded from it. Then Google’s Reyes said that would be correct, without going into more detail on the issue.

Thursday was the first time Google issued a quarterly financial report after its stock started trading on the Nasdaq Exchange in August.

At mid-morning Friday, the stock (GOOG) was up 13.5 percent to $169.57.