Is Google Inc. mortal after all? After years of defying gravity, the Internet search leader continued its tumble Thursday when a profit...
Is Google Inc. mortal after all?
After years of defying gravity, the Internet search leader continued its tumble Thursday when a profit and sales shortfall sent its shares down 6.5 percent in after-hours trading.
It was a rare miss for the darling of tech stocks. The disappointing fourth quarter heightened investor concern that a faltering economy could slow growth in online advertising sales.
Google Chief Executive Eric Schmidt insisted the company had seen no effect “from rumors of future recessions.”
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Also troubling investors, the Mountain View, Calif., company said it expected to continue spending aggressively. Google spent $678 million, well above analysts’ forecasts, in the fourth quarter on data centers, servers and networks.
It did scale back on hiring yet added 889 people. Its head count is 16,805.
Google stock gained $16.03, almost 3 percent, to $564.30 then fell $36.90 to $527.40 after the earnings release. Shares are down sharply from their all-time high of $747.24 in November.
“Google’s metabolism is catching up with it,” Motley Fool analyst Rick Munarriz said. “Until now Google has been like a teenager that keeps eating at the buffet, and now it’s going straight to the hips.”
Profit rose to $1.21 billion, or $3.79 a share, from $1.03 billion, or $3.29 billion a share, a year before. Revenue jumped 51 percent to $4.83 billion from $3.21 billion.
Excluding stock-based compensation and other factors, it earned $4.43 a share, falling a penny shy of a Wall Street average forecast, according to Thomson Financial. Google’s revenue, excluding commissions paid to partners, was $3.39 billion, also below analysts’ estimates of $3.45 billion.
The company didn’t miss by much, but investors are used to it trouncing their expectations.
For the full year, Google generated $16.6 billion in revenue, nearly all from search advertising.
Google is paid when consumers click on ads. But it didn’t see its usual growth in those clicks, which increased 30 percent year-over-year rather than average 50 percent of previous quarters.
Google executives said a revision in the company’s formula for showing advertising links crimped the fourth-quarter results by reducing the number of revenue-generating clicks.
Without providing details, the executives said Google made the change to decrease the frequency of “accidental” clicks on ads.
Co-founder Sergey Brin said Google had not seen signs of consumers clamping down on spending or of online advertisers retrenching.
“We have studied the data pretty carefully internally,” he said in an interview. “We have had economists looking at it, and we don’t see any macro economic impact on us.”
What did hurt, Google said, was having to pay more in commissions to Web sites whose ads it brokers. A big reason was its social-networking partners, of which MySpace is the largest.
Google guaranteed minimum revenue-sharing payments as part of those deals — in the case of MySpace, $900 million over four years — but said it made less money than it had hoped.
“We have found that social networking inventory is not monetizing as well as we would like,” said George Reyes, Google’s chief financial officer.
A MySpace spokeswoman declined to comment.
Google said it’s looking at different ways of targeting ads on social networks, and Brin said he was confident in social networking’s long-term prospects for generating revenue.
He and other executives also underscored the potential for growth internationally and in markets such as mobile and online video.
More than half of Google’s search traffic now comes from outside the United States, and 48 percent of fourth-quarter revenue came from international operations.
“The international market is still very nascent with tremendous potential for what we can do over time,” Chief Executive Eric Schmidt said during a call with analysts.
“Not only did we have a very good 2007, but we’re quite optimistic about 2008, and our model continues to work very well.”
Material from The Associated Press was included in this report.