Google Shares Drop 12% on Earnings Miss

Wall Street’s love affair with Google Inc. hit a rough patch Tuesday as shares of the Internet search giant plunged 12% when a big jump in fourth-quarter profit failed to satisfy investors looking for more.

Google’s stock fell $53.66 after hours to $379. That instantly shaved about $15 billion off of the company’s market capitalization to about $112 billion.

The Mountain View, Calif.-based company disclosed after regular trading that it earned $372 million, or $1.22 a share, up 82% from $204 million, or 71 cents a share, in the year-earlier quarter. Revenue jumped 86% to $1.92 billion.

On a pro forma basis, which excludes some one-time items, Google earned $1.54 a share. That fell well short of the $1.76 expected by analysts, who failed to anticipate that Google had been bumped into a higher tax bracket after domestic earnings came in stronger than expected.

The earnings miss overshadowed what analysts said was otherwise an extraordinary financial performance by the 7-year-old company, whose stock mirrors the volatile, and tenuous, nature of Internet investing.

“Fundamentals are still strong,” said Martin Pyykkonen, an analyst at Hoefer & Arnett. “But for stocks like these, it’s not good enough to keep them going up.”

If Google’s stock drop holds up today in normal trading, it would be the sharpest one-day fall since the company went public in August 2004. During regular trading Tuesday, Google shares rose $5.84 to $432.66.

Google doesn’t offer Wall Street guidance on earnings or revenue. But it does tell analysts what rate it expects to pay for taxes, which helps them to create earnings projections.

“Most of the miss was related to the tax impact,” said George Reyes, Google’s chief financial officer.

Another factor was overseas profit. People in Britain didn’t click on as many ads as Google had hoped, Reyes said, and a strong dollar reduced international sales.

Still, Google maintains a big lead over its competitors in searches performed, according to Nielsen/NetRatings. The research firm said U.S. consumers used Google for 46.3% of all searches in November, compared with 23.4% for Yahoo Inc. and 11.4% for Microsoft Corp.

Ads that Google runs on its own websites generated 57% of the company’s revenue and grew faster than revenue from ads on the websites of its ad partners.

For the full year, revenue nearly doubled to $6.1 billion from $3.2 billion, and net income soared 267% to $1.5 billion from $399 million.

“They are larger in revenue than Yahoo and roughly comparable to EBay,” said Derek Brown, an analyst at Pacific Growth Equities. “But they are growing at least twice as fast as both of those companies with margins that are higher than both.”

Nevertheless, he said, in recent weeks Google’s stock had crept higher in anticipation of another blowout quarter.

“The company in some respects didn’t meet those heightened expectations,” he said.

Despite the swings it can trigger in Google’s stock, Chief Executive Eric Schmidt said the company didn’t plan to start issuing financial forecasts.

“We’re pretty happy with our no guidance policy,” he said in an interview.

He also sought to strike down long-running rumors that Google planned to sell its own brand of personal computer.

“There’s an awful lot of speculation about Google playing in those markets,” he said. “To me, those are people projecting the last war, not the next opportunity for us.”