Google fourth-quarter results fall short of forecasts; shares drop

Weighed down by a sluggish economy and government debt crisis in Europe,Google Inc.delivered a rare miss Thursday as its fourth-quarter results fell short of Wall Street’s red-hot expectations.

Google shares tumbled 9% in after-hours trading. The Internet search giant had surpassed Wall Street’s revenue targets for eight consecutive quarters.

The disappointing results could undermine confidence in the leadership of co-founder Larry Page, who replaced Eric Schmidt as chief executive in April, analysts said. Page, 38, has been placing his bets on long-term projects at the expense of short-term returns, ruffling the feathers of some investors. In the fourth quarter, Google’s operating expenses shot up 34% from a year earlier, surpassing the 25% increase in revenue.


Analysts question whether Google’s heavy investments in Android mobile software or the Chrome Web browser are coming at too high a price to the bottom line. But Page said he was pleased with the fourth-quarter results during a Thursday conference call with analysts.

“I am most excited by the fact that we significantly improved our velocity and execution,” he said.

Google earned $2.7 billion, or $8.22 a share, during the last three months of 2011, compared with $2.54 billion, or $7.81 a share, a year earlier. Excluding certain items, Google earned $9.50 a share, below forecasts of $10.49 a share.

Revenue rose 25% to nearly $10.6 billion, the first time Google’s revenue surpassed $10 billion in a quarter in the company’s 13-year history. Excluding payouts to website partners, Google’s revenue totaled $8.1 billion, up from $6.37 billion a year earlier. Analysts had expected $8.4 billion.

The shortfall came from a slump in the prices the Internet search giant charges for clicks on ads. The average price declined 8% from the fourth quarter in 2010. Google executives blamed the decline on technical changes it made to draw more people to its ads. Total clicks on ads rose 34% from a year earlier.

Google continues to work to improve the quality of its search results to maintain its lead overMicrosoft Corp.'s Bing. This month, Google rolled out Search, plus Your World to give users more personalized search results.

Page also touted the gains Google has made with its Google+social network, a key initiative to counter the rising influence of Facebook Inc. Launched seven months ago, Google+ now has more than 90 million users, more than double the 40 million users it had three months ago, he said. Facebook still retains a commanding lead, with more than 800 million users.

Page said more than 60% of Google+ users use the product each day and more than 80% each week. He said Google was using Google+ to build a relationship with users.

“Understanding who people are, what they care about and the other people that mattered to them is crucial if we are to give users what they need when they need it,” he said.