Daily Dose of Optimism submits: Christopher Byron had an interesting article in today's New York Post (reg. req.) on how expensing of stock option grants could impact Google's reported net income. Effectively, he says Google's net income gets a 10% boost from not expensing stock option grants to employees, which will change this year.
It's interesting how the NY Post business section, which can run as few as three articles on a given day, always manages to produce at least one gem. It's hard to imagine an article like the one below running anywhere in the WSJ. Excerpt:
But there's one thing you're not likely to read about in any bullish report on the stock: Though Google's net income is growing faster than its top-line revenues (a fact that is almost always pointed out by bullish analysts), roughly 10 percent of that net income (and maybe quite a bit more than that) appears to be coming from paying the company's employees in stock instead of cash.
What's more, those payments have been taking place under accounting rules that sharply reduce the portion of the awards that have to be treated as expense items on the company's income statement, thereby reducing costs while boosting net income.
There is language in Google's most recent quarterly financial report warning that these rules are about to change, and that beginning this month, the company's net income will show a resulting downward adjustment. The adjustment appears to work out to at least a $100 million haircut for 2005 earnings, or about 40 cents per share.
I pulled up the 3Q 10Q, which had this sentence: "If we had adopted the provisions of SFAS 123 at the beginning of 2004, net income would have been reduced by approximately ... $74.3 million in the nine months ended September 30, 2005." Full excerpt from the 9/30/05 GOOG 10Q:
Effect of Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004) (“SFAS 123R