Google Sales Short of Estimates on Slow European Economy

Google Sales Short of Estimates on Slow European Economy

Google Inc. (GOOG), owner of the world’s most popular Internet search engine, reported fourth-quarter revenue that fell short of analysts’ estimates, suggesting that stalled economic growth in Europe crimped advertising sales.

Sales excluding revenue passed on to partner sites were $8.13 billion, Google said on its website. That compared with the $8.41 billion average estimate of analysts, according to data compiled by Bloomberg. Profit before certain costs was $9.50 a share, missing the $10.50 average estimate. The shares plunged as much as 10 percent.

Growth at Google, which gets more than half its revenue outside the U.S., was held back by a slowdown in Europe amid concerns about a sovereign-debt crisis in the region. The company has been working to offer customers more options in mobile and display advertising, faster-growing markets than traditional search-based ads. The company said it made less money on a per-click basis for ads in the fourth quarter.

“There’s definitely some challenges from Europe,” said Hamilton Faber, an analyst at Atlantic Equities LLP in London. He has an “overweight” rating on Google shares, which he doesn’t own. “Europe seems to be the one area that’s a little bit tricky.”

Net income was $2.71 billion, or $8.22 a share, compared with $2.54 billion, or $7.81 a share, a year earlier, the Mountain View, California-based company said.

Google shares tumbled to as low as $573 in extended trading after the report. They had gained 1.1 percent to $639.57 at the close in New York. The stock climbed 8.7 percent last year.

Search Upgrades
Search-based advertising spending in Europe rose 14 percent in the fourth quarter, compared with a 22 percent jump in the U.S., according to IgnitionOne Inc., a digital-marketing company.

The company has been investing in its search engine to improve the quality of results and bolster market share to stay ahead of Microsoft Corp. (MSFT)’s Bing service. In December, Google’s share of U.S. searches rose to 65.9 percent from 65.4 percent the previous month, according to ComScore Inc. Microsoft had 15.1 percent of searches, up from 15 percent, while Yahoo! Inc. (YHOO)’s search engine accounted for 14.5 percent.

Google is betting it can maintain its dominance in search by offering users faster, more personal query results. Last year, Google rolled out the “Instant Pages” feature, which aims to cut the time of searches for users by about 2 to 5 seconds.

Earlier this month, Google introduced “Search, Plus Your World,” intended to give users more personalized search results by tapping content from the Google+ social-networking service. The search service lists items that users may have put on Google+ or related results from friends’ posts on the social site, which competes with Facebook Inc.

Government Scrutiny
Still, Google’s efforts to attract users have drawn regulatory scrutiny. The U.S. Federal Trade Commission is focusing on whether Google unfairly ranks search results to favor its own businesses and increases advertising rates for competitors, a person familiar with the matter said in August.

More recently, the FTC expanded its antitrust probe of Google to include scrutiny of Google+, two people familiar with the situation said last week.

Google, which also develops the Android operating system for smartphones and tablets, has been using acquisitions in the past few years to build up its services for display advertising, which features images, videos or animation, and ads on mobile devices.

Last year, Google announced it was buying AdMeld Inc., which offers services to Internet publishers to manage display ads, and in 2010 the company bought AdMob Inc., which specializes in advertising on mobile phones.

source: bloomberg.com