Google Oops

Thursday, October 18, 2012 at 1pm
By John Friedman

Now there’s something you don’t see everyday: a big public company accidentally releasing its quarterly earnings announcement before it was finalized and before the market closed, precipitating a 10% drop in the stock price and a halt of trading in its shares.

Google fall down and go boom-boom-big today on this front.

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Here’s a bit of background about what all that means. Companies that have stock which average folks can buy (called publicly traded stock) are subject to extremely rigorous reporting requirements. Among those requirements are the in-due-course reporting requirements, which require the company, from the moment its shares first start trading publicly (via an initial public offering, or IPO), to release, every calendar quarter, a big, complicated announcement called a 10-Q and, once a year, an even bigger announcement called a 10–K (to remember which is which, you can think of the “Q” in “10–Q” as standing for quarterly).

And then there are also the non-due course reporting requirements, which are called 8-Ks, and which announce happenings that the public has a right to know about in near-real time (with all sorts of regulations defining what it is that the public has a right to know in near-real time). It looks like this is the type of reporting Google had trouble with today: a premature release of a draft 8-K announcing its quarterly earnings.

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All of these types of announcements are exceedingly carefully written — they are scrutinized by groups of terrifically expensive lawyers and accountants and MBA-types, and they are always, always released after the market is closed (which, for us West Cost types, happens at 1 o’clock in the afternoon), so that market participants can digest the information in the release before the regular market opens the following day (yes, there is a 4-hour after-hours market that follows, too, but typically the announcement is made shortly after 1 pm West Coast time).

Today, though, in something I have no recollection of ever happening before, a big company — Google, no less, handler of info par excellence — accidentally released for all to see a draft version of its 10K, and it did so roughly four hours before the market closed.

Information just wants to run free, I guess.

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Because the release of that information was accidental and premature, the powers-that-be decided to halt trading in the stock while they figured out what to do. By then, though, the damage to the stock had already been done (one other point: the information Google released showed a softening in its core search business):

 

Google fall down and go boom

Google fall down and go boom

 

Once trading resumed, the stock recovered a smidgen but, all in all, it was about an 8% down day for GOOG.

Those vertical lines at the bottom of the graph are indications of how many shares were being traded at a given time. So when the draft announcement leaked out around 12:30 East Coast time, lots of trading happened (with some people avoiding 10% losses and some people not, kinda) and then trading was halted until a bit after 3 pm East Coast time, when there was a whole ‘nother flurry of trading activity.

To give you a point of reference, that highest vertical line shows about 400,000 shares being traded, at prices close to $700 per share. So that would be $280 million dollars worth of shares traded in just that small chunk of time (here’s how I did the zeros, which I then double-checked using Excel to make sure: 4 times 7 equals 28, and then there are seven zeros you need to bring into that 28 number, i.e. five zeros in 400,000 and two in 700, so it’s $280,000,000 — a 28 followed by 7 zeros).

And that’s just one small chunk of the day.

Yes, Wall Street plays with very, Very VERY big numbers all the live long day.

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In the annals of public company-ness, this might be one of the biggest ministerial screwups ever. No, it’s not as big a screwup as the majorly blundered Facebook IPO, where various parties botched all the nuts ‘n bolts involved in coordinating the moment in time at which the actual trading of Facebook’s stock was to begin. It took almost an hour for the whole thing to get up and running, and during that time a lot of market participants were flying blind (as in, Did I just buy 100,000 shares of the stock or not?). The Facebook snafu, I suspect, will be in litigation for years, and the litigation settlements, I suspect, will be in the hundreds of millions and perhaps even top a billion dollars.

Today’s snafu was, I again suspect, much smaller in terms of dollars over which to fight. But on a different scale, this is bigger because, while Facebook’s IPO was the biggest tech IPO ever, and therefore a one-of-a-kind, what Google boo-booed today is something that thousands of companies get right all the time.

It’s a little ironic. My condolences to the folks who got hurt/will pay the price/etc. for this small act (releasing something into the info-flow of the world) with big repurcussions (time will tell).

And those who profited from it all (high frequency traders maybe?) enjoy your free money and here’s to hoping that the free-money crowd gets danced out of the markets in which they now frolic in the autumn mist.

671 words (a seven-minute read, sans links)

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