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Google: Late for Work and the Motorola Won't Start

NEW YORK ( TheStreet) -- It's been over a year since search giant Google (GOOG) paid an estimated $12.5 billion to acquire Motorola Mobility (MMI - Get Report). In addition to securing a portfolio of valuable hardware patents, the move was supposed to allow Google to improve its competitive position against (among others) hated rivals Apple (AAPL) and Microsoft (MSFT) in the race toward smartphones and tablet supremacy.

Except, it has not worked. And on the heels of the company's third quarter earnings report, investors are beginning to wonder if it ever will.

The Quarter That Was

Growth has never been an issue at Google. This time, revenue soared 45% in the quarter to $14.1 billion. Though net revenue fell short of estimates, it still produced year-over-year growth of 51% -- reaching $11.33 billion. This was particularly noteworthy because it included traffic acquisition costs.

On the other hand, Google missed EPS estimates by 15% -- a meaningful disappointment. Not only did earnings per share of $9.03 fall short of expectations, but the number also represented a year-over-year decline of 7%. Aside from a tough macro climate that has impacted the entire tech sector, Google's Q3 bottom line was hurt by a year-over-year decline of 15% in cost-per-click, which also shed 3% compared to the previous quarter.

Motorola Needs to Work

Disappointingly, Motorola continues to weigh on Google's performance by producing revenue of $2.6 billion, or 11% below consensus estimates of $2.94 billion. This is the same company that, upon its purchase, Google decided was worth a premium of 60% above its closing price -- making it Google's biggest acquisition in the company's brief history. Was it a mistake? At this point I think this is a question worth asking for many reasons.

For instance, the quarter showed meaningful erosion in Google's operating income. Although that metric grew to almost $4 billion, or 8.8%, it was much slower than the 24% gain generated in the same period of a year ago. Likewise, another appalling quarter from Motorola is likely to turn the analyst community negative on the company's management, which consequently can introduce pessimism in future estimates. The potential adverse effect on the stock will certainly be felt.

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