January 31, 2006

After the close on Wall Street, Google's stock fell as much as 19 percent today.

The search giant missed the Street's quarterly earnings expectations because of a higher-than-expected tax rate.

Earnings, excluding one-time items, were $1.54 per share, below the consensus expectations of $1.77.

Since its August 2004 IPO, the company has beaten the consensus profit forecast by 10 percent to 40 percent and its shares have risen steadily, often spectacularly. The drop slashed billions off the company's market value.

"Its valuation means it's priced for perfection and perfection was not delivered this quarter," said Tim Ghriskey, chief investment manager at Solaris Asset Management.

Net income for the fourth quarter rose to $372.2 million, or $1.22 per diluted share, from the year earlier quarter's $204.1 million, or 71 cents a share.

Gross revenue grew 86 percent to $1.92 billion as advertising revenues soared, meeting analysts' targets.

Shares of Google later recovered slightly to $370, a loss of 15 percent, in volatile trading.

Google's tax rate was higher than expected by Wall Street, according to Reuters Estimates. At the tax rate initially forecast by Google, adjusted earnings would have been $1.81 per share, versus the consensus of $1.77.

Revenue growth forecasts had varied between 72 percent and 99 percent. Virtually all Google's revenue comes from sales of Web search-related advertising.

Revenue, excluding traffic acquisition costs of $629 million, was $1.29 billion, nearly double the $642 million in revenue net of such costs it reported in the year-earlier fourth quarter.

Traffic acquisition costs refer to revenue that Google passes along to hundreds of affiliates, most importantly Time Warner Inc.'s America Online, which rely on Google's search system to serve up advertisements on their own sites.

Google-owned sites generated $1.10 billion, or 57 percent of revenue. Google network revenue -- sales through its AdWords network of affiliated sites -- was $799 million.

Google' revenue roughly matched consensus analysts' expectations. In its prior five quarters as a public company, Google has beaten the revenue consensus by around 5 percent to 8 percent.

"Compared to the blow-out revenue numbers in recent quarters, what it's showing is coming in right at the mean," said Martin Pyykkonen, an analyst at Hoefer & Arnett.

One-time items include a $90 million donation to the Google Foundation and $58 million in stock compensation charges, the company said.

Target prices on the stock vary between $225 and $600. Twenty-nine analysts have some sort of "buy" rating. Six have a "hold" rating. Three recommend investors "sell" Google shares.

Source: Yahoo Finance

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