Accounting & Tax

Google to Report Pro-Forma Results

The reason is that Wall Street analysts have tended to estimate and describe Google's results using non-GAAP earnings-per-share numbers, according ...
Stephen TaubOctober 14, 2005

When Google reports its quarterly earnings on October 20, the search-engine giant plans to serve up an extra set of numbers.

It will include a so-called pro-forma, or non-GAAP, diluted earnings per share (EPS) number as a supplement to its GAAP EPS number so that it can add back such things as charges for stock-based compensation, according to a posting on the company’s blog by chief accountant Mark Fuchs.

The reason is that Wall Street analysts have tended to estimate and describe Google’s results using non-GAAP EPS numbers, a practice “that resulted in some confusing apples-to-oranges analyses of our results,” wrote Fuchs. “By providing both, we hope it will be easier to understand our results.”

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Google’s consensus earnings estimate provided by Thomson/First Call doesn’t adhere to generally-accepted accounting principles because they exclude the gains and charges related to stock-option expenses, according to marketwatch.com.

That’s forced analysts to exclude the stock-based compensation charge to arrive at a pro-forma number they could compare to the numbers in their published reports, the Website noted.

In December 2001, however, the Securities and Exchange Commission issued “Cautionary Advice Regarding the Use of ‘Pro Forma’ Financial Information in Earnings Releases,” warning public companies to be particularly mindful of the potential for fraud in the practice. Nevertheless, Google’s planned issuance of pro-forma figures alongside GAAP numbers is a very common practice on Wall Street.

Google’s move is surprising because executives had earlier declared that it would refrain from standard Wall Street practices, according to the Associated Press. “The company has made it very clear that it wants to adhere to its own set of rules, and while that is an admirable goal, it doesn’t make a lot of sense when you’re dealing with simple requests for more clarity,” Standard & Poor’s analyst Scott Kessler told the wire service. “They probably realized the benefits outweighed the costs of doing something like this.”

At the same time, the company still won’t serve up future earnings estimates or schedule face-to-face meetings with analysts, according to the wire service. “They still have a long way to go,” American Technology Research analyst David Edwards told the AP. “The fact that they don’t follow those conventions exposes [Google’s] stock to more risk.”