Google profit rises,misses forecasts

Google's Q4 report could not satisfy investors' increasing demand for stronger growth.

Google Inc was among the first technology companies to shake off the recession last year,but the Internet giant8217;s fourth-quarter report could not satisfy investors8217; increasing demand for stronger growth.

Shares of Google fell about 4 per cent after the leading Internet search provider posted a higher-than-expected profit but its revenue growth lagged some of Wall Street8217;s most bullish expectations 8212; even though it was Google8217;s strongest performance in a year.

Expectations 8220;got higher as they came closer to reporting and they delivered fundamentally sound numbers,but did not deliver a blowout,8221; said Martin Pyykkonen,senior analyst at Janco Partners. 8220;I think the stock will recover. I don8217;t think it will fall through the floor.

Google,whose total revenue increased 17 per cent from a year earlier to 6.67 billion,is the latest major tech firm to close out 2009 with improved financial results. Others include Intel Corp,International Business Machines Corp and eBay Inc.

But investors had sold off tech stocks to lock in profits this week,including that of IBM,which has risen roughly 10 per cent in three months.

Google8217;s problems in China have also been an overhang on the stock,which is down about 12 per cent since hitting a 52-week high in early January. The company said last week that it might have to close its China operations after a cyber attack and its decision to stop censoring search results.

Chief Executive Eric Schmidt said in a conference call on Thursday that the China business is unchanged but the company expects to make changes in a 8220;reasonably short time from now.8221;

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Google executives said on Thursday that the company would invest heavily in 2010 as it seeks to stay ahead in the search business that delivers the lion8217;s share of its revenue and as it spends on initiatives to expand into new markets.

Google is facing increasing competition from Microsoft Corp,which has struck a deal to provide Yahoo Inc8217;s search technology. And Google8217;s efforts to expand into the mobile phone market,including the recent move to sell the Nexus One smartphone directly to consumers,has put it in greater competition with Apple Inc.

Schmidt said Google8217;s 8220;business structures8221; with Apple were quite stable,but he declined to comment on media reports that Apple was in talks with Microsoft about replacing Google as the iPhone8217;s search engine.

Schmidt cited mobile as the business outside of search advertising that was most likely to deliver the sharpest growth on a percentage basis going forward,though he said display advertising represented the largest growth opportunity in absolute dollars.

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Google8217;s fourth-quarter profit per share,excluding items,was 6.79,above the year-earlier period8217;s 5.10 and beating analysts8217; average forecast of 6.48,according to Thomson Reuters I/B/E/S.

Net revenue,which excludes the traffic acquisition costs Google paid to partners,rose 13 per cent to 4.95 billion,which was at the low end of some estimates for 13 per cent to 15 per cent growth. The average forecast was 4.92 billion.

8220;Earnings were much ahead of expectations,but top-line fell slightly below expectations,8221; said Sameet Sinha,analyst at JMP Securities. 8220;I think that is because cost per click was up about 2 per cent sequentially,and we had been expecting closer to 5 per cent growth.8221; Cost per click is the price that advertisers pay Google when a Web surfer clicks on an ad.

Google said its headcount increased to 19,835 employees in the quarter,reversing three quarters of declines. And the company said it spent more money on marketing campaigns during the fourth quarter.

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8220;Spending is always a wild card at Google,8221; said Andy Miedler,senior technology analyst at Edward Jones. But he noted that Google 8220;proved their cost-cutting stripes8221; during the downturn,and that any uptick in spending going forward will come as revenues rise.

Net income was 1.97 billion,or 6.13 a share,in the three months ended December 31,compared with 382.4 million,or 1.21 a share,in the year-earlier period when the company took charges for its investments in AOL Inc and Clearwire Corp.

Total revenue at Google rose 17 per cent to 6.67 billion. Revenue from outside the United States was 53 per cent of the total. Google does not disclose the size of its business in China,where it lags home-grown search powerhouse Baidu Inc,but analysts peg Google8217;s annual China revenue at between 200 million and 600 million.

Google shares fell about 4 per cent to 556.26 in after-hours trade following the earnings report.