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NASDAQ OMX Group Inc/The
RR Donnelley & Sons Co
Google got burned on Thursday by a very old-school mistake: Its printer messed up. Shares of Google (GOOG) plunged 9 percent in the afternoon after a lousy earnings report was mistakenly sent to the Securities and Exchange Commission before the company intended. The stock stopped trading on Nasdaq (NDAQ) after Google’s share price fell from $755 to $681 between 12:30 p.m. and 12:38 p.m. This, of course, is why firms tend to wait until the market has closed before releasing earnings reports.
(Update 3:10 p.m.: A subsequent release by Google said its third-quarter earnings were the same as previously reported. Shares were set to restart trading at 3:20.)
Google issued a blog statement that blamed R.R. Donnelley & Sons (RRD), a printing company that handles Google’s financial printing, for filing its 8-K earnings without authorization. The rough draft that was released on the SEC’s website included a very awkward line that left room for a “Pending Larry Quote,” meaning a quote from Chief Executive Officer Larry Page.
The printing gaffe is only part of the problem, though. The bigger worry is that Google missed on its third-quarter earnings, badly. Profits came in at $9.03 a share on revenue of $11.3 billion. Analysts had widely expected profits of $10.65 a share on revenue near $12 billion. Outside of dotting some i’s and crossing some t’s, maybe filling in that “Pending Larry Quote” with a real one, it’s unclear how Google could’ve shined up that rough draft, short of changing the numbers. Unless, of course, the numbers are wrong. (See update; apparently they weren’t.)
The event appeared to send some bizarre ripples through the stock market. “The whole market went crazy,” says Eric Hunsader, CEO of market data service Nanex. According to Hunsader, liquidity across a number of stocks started to dry up a few minutes before the Google earnings were released prematurely. A number of algorithmic traders filling orders appeared to pull back from the market, says Hunsader.
As a result, spreads on a range of stocks widened, meaning the difference between the price that someone was willing to pay for a stock and what someone was willing to sell it for got bigger. Usually that’s a mark of low liquidity and presages a falling market. “The stock market exploded with high order cancel rates that almost set a record,” says Hunsader. According to Nanex data, the percentage of stocks with a spread of 2¢ or narrower went from 50 percent to 30 percent. “Spreads widened on 20 percent of stocks,” says Hunsader. “We see that on big news events, like a Fed announcement. Not on stuff like this.”