Google’s 4Q disappoints as advertising prices sink

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SAN FRANCISCO (AP) - What was supposed to be a celebration of the most prosperous quarter in Google’s 13-year history instead turned into a major letdown.

The disappointment sunk in Thursday after Google’s fourth-quarter earnings report showed the Internet search leader fetched less money per click on its ubiquitous online ads.

That came as an unsettling surprise because investors had assumed a surge in online holiday shopping in the U.S. would enable Google Inc. to charge more for its ads. Instead, the average price decreased by 8 percent from the same time in 2010.

Google executives traced part of the decline to technical changes aimed at delivering more ads that attract people’s interest. Those tweaks apparently paid off as the total clicks on Google’s ads increased 34 percent from the previous year.

Most of the trouble seemed to be rooted in Europe, where government debt woes are hurting the economy, said Benchmark Co. analyst Clayton Moran. “I think everyone underestimated how quickly the European online ad market would suffer.”

The weakening euro also converted into fewer dollars during the quarter, another factor that undercut Google.

It all added up to a dramatic slowdown in Google’s earnings growth that alarmed investors. Net income edged up just 6 percent from the same October-December period in 2010, coming off year-over-year increases of more than 25 percent in each of the previous two quarters.

Google shares plunged $57.67, or 9 percent, to $581.90 in extended trading after the results were announced.

The showing could renew Wall Street concerns about Google’s moneymaking prowess under the direction of co-founder Larry Page, who replaced Eric Schmidt as CEO last April. Page took the job with a reputation for being more willing to invest in long-term projects at the expense of short-term profits. In the latest quarter, Google’s operating expenses rose 34 percent from the previous year, outpacing a 25 percent increase in revenue.

If Google’s stock falls as sharply during Friday’s regular trading as it did in Thursday’s extended trading, the shares will be worth slightly less than they were when Page became CEO.

Even before the deceleration in Google’s fourth-quarter earnings, analysts have been fretting that the company’s proposed $12.5 billion acquisition of cellphone maker Motorola Mobility Holdings Inc. will crimp profits. The deal is still awaiting approval from regulators in U.S. and Europe.

Buying Motorola is part of Page’s push to expand Google’s empire beyond the dominant Internet search engine that generates most of the company’s revenue. Much of the money is being poured into Google’s Android software for smartphones, its Chrome web browser, its YouTube video site and a social networking service called Plus that is being quickly built to challenge Facebook.

Page, 38, made it clear he sees no reason to change what he has been doing so far. “I am very happy with our results overall in the quarter,” he told analysts during a Thursday conference call.

More people probably would have shared in his ebullience if not for the curse of great expectations.

With more people than ever before shopping for holiday gifts and bargains on computers and mobile devices, Google was supposed to scale new financial heights in the October-December period.

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