Google's stock in play

Google Misses Profit Forecast and Stock Dives

By SAUL HANSELL at New York Times

After astounding investors with its incredible growth in its first year and a half as a public company, Google learned the perils of high expectations today. An earnings increase that fell shy of Wall Street's targets sent its shares plummeting.
After falling by almost 20 percent in after-hours trading immediately after the announcement, Google's stock was down more than 12 percent this evening, trading around $378. The stock had closed regular Nasdaq trading at $432.66 before the earnings were released.
That still makes Google worth $110 billion, more than any other media company in the world. But it is $30 billion less than it was worth at its high-water mark on Jan. 11, just before Yahoo — its main rival — also announced disappointing earnings.
For any other company, the results announced this afternoon y would be impressive. Google said it earned $372.2 million in the fourth quarter of last year, up 82 percent from $204.1 million the year before.
But the enormous valuation of Google is based — to the extent it has any rational basis — on predictions that it will continue to grow very rapidly, extending its success in Internet advertising to other Internet services and other forms of advertising. Signs of even a modest slowing in that expansion, relative to investors' expectations, could have a large impact on Google's stock price.
Google's aura of infallibility, moreover, has been clouded on other fronts in recent weeks. The debut of its video download store met with critical reviews. And its decision to introduce a Chinese service that filters out content objectionable to the Chinese government raised questions about its commitment to its informal slogan, "Don't be evil."
Google has been insistent — some might say arrogant — about doing things its own way, and today's earnings surprise may be a consequence of the company's unusual policy of not providing guidance to investors about its financial results. Its shortfall was largely the sum of several modest drags to its results — developments that many other companies might have warned of in advance.
Google's revenue internationally was hurt by a strong dollar. Its tax rate was higher than expected. And expenses increased faster than anticipated, especially as the company expanded its sales force overseas.
All told, Google's quarterly earnings came to $1.22 a share, compared with 71 cents a share in the fourth quarter of 2004. Excluding some special items — including $58 million in stock-based compensation, and a $90 million contribution to the Google foundation — Google earned $1.54 a share, far below the $1.76 a share that analysts had expected.
The company's revenue totaled $1.92 billion for the fourth quarter, up 86 percent from $1.03 billion a year earlier. Excluding payments to other Web sites that display ads that Google sells, the company's revenue was $1.29 billion. That matched analysts' published estimates but was shy of the number anticipated by investors, said Jordan Rohan, an analyst with RBC Capital Markets.
"Consensus expectations are not reflective of the hopes and dreams of Google investors," he said.
In a conference call with investors, Eric Schmidt, Google's chief executive, dismissed the minor added expenses and the lower foreign income and emphasized the company's vast potential.
Even though the decline in Google's share price eased somewhat in after-hours trading, it still exceeded the largest one-day drop in Google's stock in regular trading, which came on Jan. 20