By Yi-Wyn Yen
Turns out Google is mortal. The Internet search giant ended a month’s worth of disappointing earnings from Silicon Valley tech companies by missing Wall Street’s forecasts too.
Google (GOOG) blamed a slowdown in its fourth-quarter growth on its difficulty selling ads on social networking sites. The company delivers online ads for about 20 social networking sites, including MySpace (NWS). “I don’t think we have the killer best way to advertise social networking,” said Sergey Brin during a conference call with analysts Thursday. “Some of the things we were working on in Q4 didn’t pan out. There were some disappointments there.”
Google is the latest tech company struggling to stay ahead of consumer spending and behavior during an economic slowdown. EBay (EBAY), Apple (AAPL), and Yahoo (YHOO) reported projections that underwhelmed Wall Street in the past week. Google does not give sales or profit guidance, but its fourth-quarter numbers gave reason to make tech investors a bit nervous. Google has already wiped out nearly $73 billion off its November market cap, when shares hit a high of $747. By mid-day Friday, the stock was trading at $521.
The Mountain-View, Calif.-based company made $4.43 a share for the fourth quarter, which was a penny short of analysts’ consensus. Google raked in a $1.2 billion profit for the quarter, up 17% from a year ago. Sales, minus the money the company shares with its ad partners, came in at $3.39 billion, up 52 percent from the previous period a year ago. The Street had anticipated $3.45 billion and Google’s shares dropped more than 7 percent in after-hours trading to $516.20.
Not that all of this came as a big surprise. “Our expectations were a bit muted going into the quarter,” said Christa Quarles of Thomas Weisel. “But, this is still a company that grew 52 percent a quarter.”
Along with the discovery that fans of social networking sites have a low propensity to click on ads, Google was challenged by a decline in advertising spending in financial and travel businesses. Chief Financial Officer George Reyes said the slowdown was “seasonal” due to the holiday period last quarter.
Meanwhile, the growth rate of paid clicks for AdSense, which displays ads on sites outside of the Google homepage, has slowed. Paid clicks increased 30 percent compared to a 45 percent growth rate from the same period a year ago. AdSense, which made up 34 percent of total revenue, raked in $1.64 billion.
Google’s performance is a telling sign of how consumers use the Internet, and thereby gives some indication of how the Internet industry is faring. Analysts, naturally, tried to bait Google chief Eric Schmidt into giving some guidance for 2008. Schmidt, who acted like an air traffic controller by directing which of the five other Google execs answered questions on the hour-long call, didn’t budge.
When one analyst asked about potential outlook during a “weaker economy,” Schmidt quipped, “We’re not going to talk about the current quarter. We’re talking about the past quarter. We haven’t seen any negative impacts with rumors of future recessions.”
Real or not, Google has proven that it’s not immune to an economic downturn. While Jonathan Rosenberg, who runs Google’s product management team, painted a cheery picture of bargain-hunting consumers clicking on ads during a recession, some feel that’s not enough.
Google is banking a lot of the extra revenue to come from DoubleClick, the ad serving company it bought for $3.1 billion last year. Google can’t close the deal until the European Commission approves the merger. A ruling is expected by April 2. Said Schmidt, “We’re hopeful that it’ll clear.”