Google results fall short

Google Inc's quarterly results fell short of Wall Street's heightened expectations for the holiday season as declining search advertising rates contributed to a rare miss, triggering a 9 percent slide in its shares. The No 1 Internet search engine underperformed on both revenue and earnings in the fourth quarter, disappointing investors who had counted on record US online-commerce to prop up results.
Several analysts zeroed in on an 8 percent drop in cost-per-click, or money paid by marketers to the company for search ads, versus analyst estimates of a slight increase. "The major question is: Is this a one-time thing or is this something that is going to continue because the nature of the business has changed," said Mayuresh Masurekar, an analyst at Colins Stewart.
Google executives reeled off a number of figures during the conference call that highlighted the company's progress in newer businesses such as display advertising, mobile and social networking. But the good news did not offset concerns about Google's first year-on-year decline in its CPCs in more than two years, leading to nearly a half-dozen questions from analysts during the call and a terse one-liner from Chief Executive Larry Page who at one point requested that "maybe we can get our next question not about CPCs."
Google executives said the decline in search ad rates was primarily due to the impact of foreign currency exchange fluctuations and changes to the company's advertising formats. The new ad formats drove a sharp increase in the total number of clicks by websurfers on Google's search ads - up 34 percent year-on-year - even though some of the format changes impacted prices negatively, Google executives explained.
Google's shares dived to about $583 in after-hours trade, from the Nasdaq close of $639.57 before the results. Google is increasingly investing in mobile and social networking initiatives as it positions its business for new technology trends and squares off against rivals Apple and Facebook.
Google's business providing graphical display ads is generating revenue at a $5 billion annualised run rate, Page said during the call. That's up from the $2.5 billion run rate in October 2010, the last time Google provided a peek at the display business's financial performance. Google said on Thursday it earned $2.71 billion, or $8.22 per share, in the fourth quarter, compared with $2.54 billion, or $7.81 per share, a year earlier. Excluding certain items, Google earned $9.50 per share, lagging estimates for $10.49 a share. Google's net revenue, which excludes fees shared with partner websites, was $8.13 billion in the fourth quarter, versus $6.37 billion a year earlier. Analysts polled by Thomson Reuters I/B/E/S were looking for $8.4 billion.