Did Google close Adsense accounts to make their numbers for 2012 2Q results? You decide…

By | November 29, 2019

I just came across this interesting article from Spencer Haws @ https://www.nichepursuits.com/adsense-whistleblower-my-thoughts-on-the-google-adsense-conspiracy-theory/

It’s always tempting to believe conspiracy theories! They always have a certain amount of ability to explain things… So I was a little skeptical about the Adsense conspiracy theory myself. I ran some back of the envelope calculations… Whoa!

Can you correlate?

Let’s correlate the data with the actual income of Google at that period. Would it shed any light whether the allegations were true or not? What I found on initial searching did not fill me with confidence… I’ll simply post the links for you to check out.

Headline: Alphabet had its worst day since 2012 after Google’s slowing ad revenue worries investors
https://www.cnbc.com/2019/04/30/alphabet-closes-down-after-reporting-slowing-google-ad-revenue.html

Headline: Google Shares Plunge as Earnings Results Leak Early (published in 2012)
https://www.wired.com/2012/10/google-shares-plunge-as-earnings-results-leak-early/

So what happened in the 2Q? Well, Google search also provides that answer.
https://www.macrotrends.net/stocks/charts/GOOG/alphabet/eps-earnings-per-share-diluted

2Q and 3Q revenues were much weaker than expected, esp. when compared to the previous year. So what happened?

What happened?

Well, I’d expect the usual “Wall Street” earnings pressures to deliver… Q on Q. But in those days, how much revenue did Google make? And how much ‘earnings’?

Google’s partner sites generated revenues of $2.98 billion, or 27% of Google revenues, in the second quarter of 2012. This represents a 20% increase from second quarter 2011 Google network revenues of $2.48 billion.
https://www.searchenginewatch.com/2012/07/19/google-reports-12-2-billion-in-q2-2012-revenue-35-yoy-growth/

But what about expenses for the quarter or year?
https://bgr.com/2012/07/19/google-q2-2012-earnings-profit-revenue/

Buying the now defunct Motorola?
https://dealbook.nytimes.com/2011/08/15/google-to-buy-motorola-mobility/

How much did Google search generate in terms of total profitability? Are the numbers there?

Google Search Zoo

So what happened in the search engines? Well, as it happened…

Panda was in the midst of updating and Penguin came to visit!
https://moz.com/google-algorithm-change

So here you have a situation where they were buying a major mobile phone competitor with woolly numbers (as it quickly turned out), they’d just rolled out Panda/Penguin over that period… and suddenly the revenues started to look weaker than expected.

Motorola Sucked Royally

I can imagine that management gulped hard when they realized their bad timing. Combine that with some typical earnings pressure from Wall Street, then some senior management heads would be rolling if different departments didn’t make their numbers.

Motorola Operating Loss – GAAP operating loss for Motorola was $233 million ($192 million for the mobile segment and $41 million for the home segment), or -19% of Motorola revenues in the second quarter of 2012. Non-GAAP operating loss for Motorola in the second quarter of 2012 was $38 million, or -3% of Motorola revenues.

Shares and Profits

It’s hard to determine the amounts that we’re talking about and if they’re significant. But in 2012, CPC for Google was falling as well, esp. since the Adwords platform and Adsense program are money spinners for Google. Google’s net income was $3.3billion + . Motorola was haemorraghing money, CPC was going down, Google had issued Penguin/Panda… Mmm.

We know there were approximately 331 million shares issued at that time. So to produce a blow out quarter would mean that there would be pressure on the income generating centers. If much of the money was recycled through Google’s own partner sites, they could still legitimately hoover up the money and produce better results, since there was essentially no profit-share.

https://www.zdnet.com/article/adsense-leak-controversy-heats-up-as-google-denies-favoritism-theft-allegations/

So how would banning publishers go?

Let’s make some assumptions. For every cent on the dollar extra profit, you would need 331,000,000 x 0.01 or approx. 3.3 million dollars. We already know that some on Wall Street expected Google to produce 10.04 profit. They actually reached $10.12, or 8 cents more. So that is approximately $26.4 million dollars extra. Perhaps more, if you factor in the loss-making units from Motorola.

Now if every account approaching $5000 payout that was banned… how many would you need? Turns out not that many: 662 accounts, assuming an average $5000 for every 1c extra profit, or approximately 5600 accounts for 8c of profit. Of course, if you’re padding for more than just 8c… due to losses elsewhere, the number of accounts could be much higher.

Wow! Suddenly, this makes sense. Now how many accounts were banned? Have we any idea of knowing?

Class Action Settled

But the evidence is more than circumstantial. Though Google admits nothing in the settlement, and claimants will sign an NDA… Interesting.

Google AdSense Class Action Settlement

$11 million dollars divided by $5000 would suggest that there were at least 2,200 claimants on a raw numbers basis. Many accounts would have been smaller, some bigger. Who knows? I don’t think that Google even knows the number of accounts they closed to make their figures. Settlements won’t be 100% for sure, and the lawyers need paid as well.

I am very glad that Google is around, I hope they make BILLIONS of dollars HONESTLY. But this situation just did not meet the sniff test! They really shouldn’t have put their Google advertisers through this wringer.

Author: InvestorBlogger

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