Google Earnings Disappoint

SAN FRANCISCO - Google's fourth-quarter profit missed analyst expectations, signaling that the crumbling U.S. economy has dented the Internet search leader's moneymaking machine.

The Mountain View, Calif.-based company said Thursday that it earned $1.21 billion, or $3.79 a share, during the final three months of 2007. That's up 17 percent from net income of $1.03 billion, or $3.29 a share, in the same period a year earlier.

If not for stock awards given to its employees, Google said it would have made $4.43 a share - a penny below the average estimate among analysts polled by Thomson Financial.

Revenue totaled $4.83 billion, a 51 percent improvement over $3.21 billion in the previous year.

In a more important measure to investors, Google retained $3.39 billion in revenue after paying commissions to its thousands of advertising partners across the Web.

The net revenue missed analysts' estimates by about $60 million, just under 2 percent.

The disappointment will likely amplify concerns that Google won't be able to sell as much online advertising - the main source of its profit - as consumers clamp down on their spending amid ominous signs of a recession in the United States. Those worries contributed to a nearly 20 percent decline in Google's stock price last month.

Google shares rose $16.03 to finish at $564.30 in Thursday's regular session, then plunged $45, or 8 percent, in extended trading after the fourth-quarter results came out.

Although Google's profits are still rising, the fourth-quarter gain was the smallest in the company's 14 quarters as a publicly held company. And this was just the third time Google's earnings have not exceeded analyst estimates.

Nevertheless, Google chairman Eric Schmidt said he was pleased with the company's showing.

Investors are particularly concerned, however, about Google's participation in a U.S government auction of a prized piece of the airwaves that will cost the winning bidder at least $4.6 billion. The bidding isn't expected to be completed until March.

Although Google could use the 700 megahertz spectrum to make more money from advertising delivered to mobile phones, many investors are worried that the expansion could become a financial drain and distract management from the company's main Internet business.