Google Earnings Dismay Investors

Quarterly Profit Gain Falls Short of Wall St. Expectations

Google seemed to lose some of its sheen yesterday, after the company posted financial results indicating the online advertising market may be starting to slow.

The search engine said profit increased 17 percent in the fourth quarter, but that result disappointed Wall Street and prompted analyst speculation that problems in the economy may be taking their toll.

"The weak economy is definitely playing some role here," said Sandeep Aggarwal, an analyst with the Oppenheimer investment firm.

Aggarwal said, however, that Google's management did not provide enough information to indicate how much of the blame lies with the economy and how much lies with issues Google might be having with advertisers.

Shares of Google closed up $16.03, or 2.9 percent, to $564.30. The announcement of its quarterly results came after the market closed, and shares fell in after-hours trading. Google's share price has dropped almost 20 percent this year.

Profit for the quarter increased to $1.21 billion, from $1.03 billion during the corresponding period a year ago. Revenue reached $4.83 billion, up from $3.21 billion.

For the year, Google's profit was $4.20 billion ($13.29), up from $3.08 billion ($9.94) in 2006. Revenue increased to $16.59 billion, up from $10.60 billion.

Google, far and away the most popular search engine, has been further distancing itself from its rivals over the past year. According to Nielsen Online, Google's share of the U.S. Web search market rose to 56 percent in December, up from 51 percent at the end of 2006.

Chief executive Eric E. Schmidt credited the increased usage of the company's search engine and other products to its international growth. Schmidt said over half of Google searches are now conducted outside the United States.

The No. 2 search engine company, Yahoo, meanwhile, lost ground. This week it posted a decline in profit and announced it would lay off 1,000 workers in a restructuring.

Although it made its name in Web search, Google has ventured into computing services that compete with Microsoft's software. In recent years, Google has been a proponent of the idea of "cloud computing," a concept that all of a user's applications and documents are stashed on the Web and can be accessed from any Web-connected gadget.

This year, the first lines of phones incorporating Google-developed software called Android are expected to debut.

Google co-founder Larry Page said yesterday the company was working on an advertising product that would require marketers to pay only when Web surfers bought items found through the ads placed alongside its search results.

Separately, Google scored a win yesterday when a minimum $4.6 billion bid was met in a Federal Communications Commission auction of wireless spectrum. Google lobbied last year for a stipulation that the winner of those airwaves will have to make its network open to all mobile devices. If the minimum bid had not been met, the FCC would have tried to auction the airwaves without that requirement.