Google Earnings Fall Short of Expectations
SAN FRANCISCO — Google said Thursday that its profits jumped 17 percent in the fourth quarter as sales grew at a healthy 51 percent, propelled by continued strength in the company’s core search advertising business. The results fell short of analysts’ expectations, raising concerns that the Internet search giant will not be immune from the economic slowdown.
The company said net income for the quarter was $1.2 billion, or $3.79 a share, compared with $1.03 billion, or $3.29 a share a year ago. Profit, excluding items like stock-based compensation, was $4.43 a share.
Google’s revenue in the last three months of the year rose to $4.83 billion from $3.21 billion a year ago. Excluding commissions paid to advertising partners, a measure closely watched by Wall Street analysts, Google’s revenue jumped to $3.39 billion, from $2.23 billion a year earlier.
On average, Wall Street analysts polled by Thomson Financial expected Google’s profit, not counting the cost of items like stock options, to be $4.45 a share, on revenue, excluding commissions paid to partners, of $3.45 billion.
Google’s shares were down 8 percent after hours. In regular trading, they closed at $564.30, up $16.03, or nearly 3 percent.
Even while falling short of analysts’ estimates, the results show that Google, as expected, continues to outpace rivals. Earlier this week, Yahoo reported sales growth of just 8 percent, as profits dropped 23 percent. Meanwhile, Microsoft said last week that its online services unit, which competes directly with Google, saw fourth-quarter sales jump by 38 percent, aided by the company’s $6 billion acquisition of advertising specialist aQuantive.
Analysts were watching Google’s report for any signs that the economic slowdown is hurting the company’s advertising business. Yet some believe that Google, which is largely dependent on text ads it places alongside search results, is likely to be more immune to an advertising recession than rivals like Yahoo and Microsoft, who earn a greater share of their revenues from display advertisements.
“I don’t think Google’s ad model is insulated from a recession, but it is probably less vulnerable to cutbacks than other online ad models and definitely than traditional advertising,” said Scott Kessler, an analyst with Standard & Poor’s.
Still anxiety about the economy and other factors have sent Google shares down by about 20 percent this year. The decline followed a quick run up in Google shares, which reached a high of $747.24 in early November.
One issue weighing on investors is whether Google has won an auction for wireless spectrum, which is being conducted by the Federal Communications Commission. Google had promised to bid at least $4.6 billion — the reserve price set by the agency — for a portion of the spectrum known as the C Block.
The F.C.C. said that there had been no further bids for the C Block since the $4.7 billion bid Thursday morning. Because of the way auction rules are written, it is unlikely that others will bid higher. The F.C.C. will not announce who placed the winning bid until bidding for other portions of the spectrum is completed, a process that could take weeks. Many analysts believe Google had no intention to bid to win and expect Verizon Wireless, or perhaps another cellphone operator, to have placed the high bid.
But the uncertainty has been a drag on Google’s shares. Some investors fret that if the company won the spectrum, it might have to spend even more to build out a network wireless network. Google ended the third quarter with more than $13 billion in cash and marketable securities.