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Date:21/01/12

Google shares plunge as earnings report raises growth concerns

Google Inc.'s stock tumbled 8% Friday after a disappointing fourth-quarter report raised concerns that the search giant's revenue growth is slowing.

The weaker-than-expected results were hurt by Europe's economic woes as well as mobile and other new forms of online advertising selling for lower prices than Google's traditional ads.

The issues come as Google continues its costly expansion beyond its core search-advertising business, which pits it against formidable competition in mobile, social networking and online video.

Google shares fell 8% to $588.46 late Friday morning, off a three-month low of $584.81."We maintain a cautious view as European weakness likely persists and the U.S. appears off to a slow start," Benchmark Co. analyst Clayton Moran wrote in a note to clients.

"Competition between the largest Internet portals and search providers has increased as Internet advertising has grown tremendously."

Late Thursday, Google reported fourth-quarter earnings of $9.50 a share, on an adjusted basis, falling short of the $10.49 a share average estimate of analysts in a Thomson Reuters poll.

One surprise was an 8% drop in the average amount an advertiser paid for someone clicking on an ad. The company attributed the decline to faster growth in relatively low-revenue types of ads such as those placed on mobile devices and others from emerging markets. But the decrease raised questions about how newer forms of ads will affect the company's business.

Google's international growth rate--excluding the U.K.--slowed, and the company cited Germany as a weak spot. Foreign-exchange impacts also weighed on the results.

Many analysts on Friday said they were unperturbed by the results and noted positive aspects of the report. For example, paid click volume--a measure of how frequently consumers click on ads distributed by Google--jumped 34%.

"Despite the slowdown in search, we remind investors that paid click volume is showing its fastest acceleration in years, display and mobile traction growth is continuing," Evercore Partners analyst Ken Sena said in a note.

Sena added that Google "seems to be correctly focusing on fewer, more promising franchises."
Google has sought to expand its business as it faces the risk that changing consumer behavior could make search less relevant in the future.

The company has pushed into social media, launching Google+ as an alternative to Facebook's popular website. Google has also been repositioning its YouTube site as a destination for professionally produced content, as Internet video providers such as Netflix Inc.(NFLX) as well as traditional media companies such as cable distributor Comcast Corp. are also seeking to capture online viewers' eyes.

In addition, last year Google agreed to buy Motorola Mobility Holdings Inc. for about $12.5 billion, diving into the mobile-handset space and beefing up its patent trove as its Android mobile operating system faces attacks from rivals.

Microsoft Corp. took aim at Google's Web-based software for word processing and business functions last year, releasing a cloud-based version of its popular Office applications.

Google reported its operating expenses rose to 32% of revenue in the fourth quarter, up from 30% a year earlier. Meanwhile, the company's capital expenditures totaled $951 million during the period, its highest of the year.

The majority of that spending was related to information-technology infrastructure investments, including data centers, servers, and networking equipment.

Google said it hired more than 8,000 new employees in 2011. Last January, the company said 2011 would likely be a record hiring year, topping the 6,000 new hires added in 2007.

Google Chief Financial Officer Patrick Pichette said during a conference call to discuss earnings that the results capped a year of "disciplined" investing alongside "strong growth and actually great operational and financial performance.

Source: Total Telecom




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