Google's earnings growth falls short of expectations, stocks fall

Google's earnings growth falls short of expectations, stocks fall

	Published : Wed, 01 Feb 2006 13:55 By : Cedric Benson Print this Story

NEW YORK: Google Inc.'s earnings growth for the fourth quarter that fell short of market expectations sent its shares plummeting on the Wall Street -- by as much as 19 per cent -- Tuesday, virtually wiping out nearly $16 billion from shareholders' wealth.

Google said its net income for the quarter nearly doubled from the corresponding previous year quarter to $372.2 million. Earnings, excluding one-time items, were $1.54 per share, below the consensus expectation of $1.77. Investors familiar with bigger things from the search engine company, reacted swiftly and pulled down the shares. This is the first time that the company has not been able to meet analysts' expectations.

It is estimated that the amount of investor wealth lost as a result of the backlash would exceed the current market value of General Motors Corp.

Google posted a total revenue of $1.92 billion for the period, an increase of 86 per cent over the corresponding last year quarter. After deducting commissions paid to its advertising partners, the figure stood at $1.29 billion, matching analyst expectations.

One-time items include a $90 million donation to the Google Foundation and $58 million in stock compensation charges, the company said.

Chief executive officer Eric Schmidt told an analysts conference call that the results actually topped the company's internal projections. The company has been refusing to project its earning potential making it difficult for analysts to make calculations and guess estimates of its value.

The earnings have been affected to a certain extent by the higher tax rate during the quarter. Its effective tax rate in the quarter was just below 42 per cent, but well above the 30 per cent rate during the second and third quarters. The higher rate was on account of its abnormally high international expenses.

Explaining the situation, chief financial officer George Reyes said advertising spending in some of the sectors in its second largest market, that is, Britain, during December had been weak mainly due to the year-end holidays. Reyes said since it pays far lower taxes in Europe through its Irish subsidiary than it does on revenue from its home market, the company ended up paying higher taxes overall.

The results also indicated higher expenses for the company. It had spent $155 million on sales and marketing during the quarter, more than doubling the $76 million spent last year. The company also hired nearly 700 more workers, expanding its payroll to 5,680 employees.

Its sales growth too has slowed -- excluding ad commissions, the quarter's revenue rose by 23 per cent compared with the third quarter. In 2004, the company's fourth-quarter revenue increased by 30 per cent from the third quarter.

Google is now mired in at least two controversies. It has decided to contest a U.S. administration subpoena demanding it to produce one week's worth of search requests to help the federal government frame a law to shield children from online pornography.

Google has launched a new search engine in China with facility to censor some results complying with restrictions on free expression in the country.