Is Google Inc. mortal after all?
After years of defying gravity, the Internet search leader’s stock continued its recent tumble Thursday when a profit and sales shortfall led to a 6.5% slide in after-hours trading.
It was a rare miss for Google, the darling of tech stocks. The disappointing fourth-quarter results heightened investor concern that a faltering economy could slow growth in online advertising sales.
Chief Executive Eric Schmidt insisted that the company had seen no effect “from rumors of future recessions.”
Also troubling investors, Mountain View, Calif.-based Google said it expected to continue spending aggressively. It spent $678 million -- well above analysts’ forecasts -- in the quarter on data centers, servers and networks. It did scale back hiring yet still added 889 people, bringing its head count to 16,805.
Google shares gained $16.03, almost 3%, to $564.30, then fell $36.90 to $527.40 after the earnings release. They are down sharply from their all-time high of $747.24 in early 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.”
Net income rose to $1.21 billion, or $3.79 a share, from $1.03 billion, or $3.29 a share, a year earlier. Revenue jumped 51% 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 the average Wall Street forecast of $4.44, according to Thomson Financial. Google’s revenue, excluding commissions paid to partners, was $3.39 billion, also below analysts’ estimate of $3.45 billion.
The company didn’t miss by much, but investors have come to expect it to trounce their expectations.
For the full year, Google generated $16.6 billion in revenue, nearly all from search advertising.
Google gets paid when Web users click on ads. But it didn’t see its usual growth in those clicks, which increased 30% year over year rather than the 50% averaged in previous quarters.
Co-founder Sergey Brin said Google had not seen -- and did not expect to see -- any sign of consumers clamping down on spending or 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 macroeconomic impact on us.”
What did hurt, Google said, was having to pay more in commissions to websites whose ads it brokered. A big factor was its social-networking partners, of which News Corp.'s MySpace is the largest. Google guaranteed minimum revenue-sharing payments as part of those agreements -- in the case of MySpace, $900 million over four years -- but said it made less money from the deals 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 is looking at various ways to target ads on social networks. Brin said he was confident in that sphere’s long-term prospects for generating revenue.
He and other executives also underscored the potential for growth around the globe and in new technology markets such as mobile and online video. More than half of Google’s search traffic now comes from outside the United States, and 48% 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,” 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.”
Schmidt’s bullish view of the future of mobile advertising has unnerved some investors. Google prevailed Thursday in its push to open airwaves being auctioned by the government to any mobile device, when a bidder offered $4.71 billion for the largest portion of the available spectrum. Google, which had pledged to bid at least the reserve price of $4.6 billion, would not comment.
It could be weeks before the Federal Communications Commission reveals the winning bidders.
Investors are waiting on the sidelines to see whether Google plans to undertake a multibillion-dollar effort to build out a wireless network, said analyst Jeffrey Lindsay of Sanford C. Bernstein & Co.
That kind of uncertainty is familiar to investors and observers of Google, which does not give financial guidance, said Paul Kedrosky, a La Jolla-based venture capitalist and senior fellow at the Kauffman Foundation.
“Investors penalize the stock because they don’t know what to believe,” he said. “Google is not clear enough with shareholders, so the stock gets whipsawed.”