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Analyst Sameet Sinha comments on Google Inc. (GOOG) in the Wall Street Journal

Google Cools Off, and Stock Drops

By AMIR EFRATI

Google Inc.'s revenue machine cooled off after four straight quarters of accelerating growth, while the Internet giant spent heavily as it tries to push beyond its core search-advertising business.

The weaker-than-expected results for the fourth quarter sent the company's shares plunging more than 9% Thursday in after-hours trading and put a spotlight on Google's main moneymaker, the text ads that appear next to its search-engine results.

Paid clicks—a measure of how frequently consumers click on its ads—rose 34% in the fourth quarter compared with a year earlier, but the average amount paid by advertisers every time someone clicked on their ad fell by 8%.

Some analysts voiced concerns that as more people access the Web through their mobile devices and click on Google ads that cost less than ads viewed on desktop computers, it was negatively affecting revenue. Sameet Sinha, an analyst at B. Riley & Co., said that potentially, growth in mobile was "cannibalistic" to desktop ad revenue.

Google executives said that a variety of factors—not just mobile-Web ad clicks—contributed to the drop-off in the amount of money advertisers paid on average when people clicked on their ads.

They said investors should expect to see quarter-over-quarter growth in pricing starting in the third quarter.

Overall, Google posted a 7% profit and a 25% jump in revenue for its fourth quarter from a year earlier, down sharply from a 26% profit jump and 33% revenue increase in the company's third quarter. Google partly attributed the results to slower international growth, including in Germany, among other things.

At the same time, Google's spending in the latest quarter outgrew revenue—35% to 25%—as Google Chief Executive Larry Page pushes the company into new territory.

Mr. Page said Google is making headway outside of search ads, especially in the sale of online display ads, which includes graphical, interactive and video ads. This business was accelerating and is currently on pace to generate $5 billion per year, or well over 10% of Google's overall revenue.

Mr. Page said Google is also seeing traction in Google+, the company's social network that launched in June 2011 and which competes against Facebook Inc. Google has begun to blend Google+ with its Web-search results. Mr. Page said the service has more than 90 million users, up from 40 million three months ago, and 80% of those users "engage" with their accounts every week.

Google pulled back somewhat on hiring, adding about 1,100 since the end of September—compared with more than 2,500 in the prior quarter—and bringing its total work force to 32,467.

Overall, Google posted a quarterly profit of $2.71 billion, or $8.22 a share, up from $2.54 billion, or $7.81 a share, a year earlier.

The company said revenue would have risen by 28.2% if foreign-exchange rates hadn't changed during the most recent quarter. Google saw a 29% revenue increase for 2011, bringing in about $37 billion.

Google had $44.6 billion in cash at the end of December.

Article Link: http://online.wsj.com/article/SB10001424052970204301404577171203099174414.html