Wall Street Unimpressed by Google Earnings

 

By Yuki Noguchi

Washington Post Staff Writer

Wednesday, February 1, 2006; D04

 

 

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/31/AR2006013100987.html?referrer=email&referrer=email

 

Google Inc. revenue and profit rose more than 80 percent in the fourth quarter, to earnings of $372 million ($1.22 a share) on revenue of $1.9 billion, the company said yesterday.

 

But Google's stock price fell sharply in after-hours trading, a sign that Wall Street was not satisfied with the company's gains.

 

The news came as a kind of reckoning for the financial community, which had expected the search-engine company to double its profit and earn $1.51 to $1.98 a share. After closing at $432.66, up $5.84, Google's share price fell as much as 16 percent after hours.

 

Google was taxed at a higher rate than it had expected during the quarter, Chief Financial Officer George Reyes said. The company also gave $90 million to its Google Foundation.

 

"Wall Street's expectations are so high that even when you have an operationally great quarter, that wasn't enough for the Street," said Philip Remek, an analyst with Guzman & Co. Taking the tax and charitable items into account, Google fell within the range of analysts' expectations, he said. "There's nothing wrong here."

 

For the year, Google posted $1.46 billion in profit on revenue of $6.14 billion. In 2004, the company earned $399.1 million on revenue of $3.19 billion.

 

"We're very, very pleased with the results on every level," said chief executive Eric E. Schmidt. "We see tremendous opportunity for growth at this point," notably in international markets, where Internet use is increasing rapidly, he said. "We take the long-term view of the business."

 

Google executives said the company's underlying business dynamics are still good.

 

Founder Larry Page said Google continues to invest in software innovation that will make computers generally easier to use. In the past quarter, Google announced new software for mobile users, an online video store and a $1 billion investment in America Online Inc.

 

Google is already one of the most powerful media companies on the Internet and even the slightest rumor concerning it can cause volatile stock trading. A rumor that it would purchase online music seller Napster Inc. sent that company's stock price up 60 percent yesterday, prompting a public denial from Google.

 

"We have no plans to acquire Napster, nor do we have plans to develop a music store at this time," a Google spokeswoman said in an e-mailed statement.

 

The company's share of Internet search increased in November, according to Nielsen-Netratings. It said 46.3 percent of total search queries in the United States were conducted on Google, compared with 45.7 percent in June.

 

Google's success has started to make it a bigger target for criticism from users and analysts. The company was criticized for agreeing to censor some results on its Chinese search engine, while at the same time it resisted a U.S. government subpoena of search records.

 

Some analysts have started to cool on the stock, calling it overvalued and saying growth in online advertising is bound to slow down.