Google’s shares plunge after earnings miss

updated 5:01 p.m. ET Feb. 1, 2006

SAN FRANCISCO - Google Inc. shares sank Wednesday after its earnings report disappointed Wall Street and stunned almost everyone who follows its stock, except the company’s founders.

Co-founders Larry Page and Sergey Brin have always insisted they will run their 7-year-old company the way they want, even if it means ignoring stock market pressures to hit a widely watched earnings target.

Now Tuesday’s release of a fourth-quarter earnings report that badly missed analyst estimates will test their defiant attitude, along with investors’ affection for the online search engine leader.

“This shows that Google is not impervious,” Standard & Poor’s analyst Scott Kessler said Tuesday.

That realization rattled previously bullish investors as Google’s stock price plunged $30.88, or 7.1 percent, to close at $401.78 in trading on the Nasdaq Stock Market. The downturn wiped out more than $9 billion in shareholder wealth and trimmed about $2 billion combined from the net worth of Page and Brin, who are both 32.

The Mountain View-based company, which went public August 2004, said its net income nearly doubled from the previous year to $372.2 million during the final three months of 2005.

For most companies, that kind of stellar growth is a reason to celebrate. But investors have become accustomed to much more from Google, which had topped analyst estimates by at least 14 cents per share in each of its previous five quarters as a public company.

That streak of prosperity had helped to more than quadruple Google’s market value in less than 18 months.

This time around, Google fell woefully short of living up to the analysts’ estimates.

If not for a charitable donation and stock compensation expenses, Google said it would have earned $1.54 per share. That fell well below the average estimate of $1.76 per share among analysts surveyed by Thomson Financial.

Google released its results after the stock market closed Tuesday.

The letdown is bound to disillusion some investors, S&P’s Kessler said. “If you ask a lot of people on Main Street why they own Google, they will tell you, ’Because it goes up every day.’ Well, that’s a great thesis until it goes down.”

Even with the sell-off, Google’s longtime investors still will be sitting on substantial gains. The company’s shares went public at $85 and were trading just slightly above $300 in late October when Google released a third-quarter report that delighted investors.

One key factor didn’t change for Google in the fourth quarter: advertisers are continuing to pour more money into the company’s widely used search engine as more consumers spend their free time surfing the Web.

Google’s revenue for the period totaled $1.92 billion, an 86 percent increase from $1.03 billion in the prior year. After subtracting commissions paid to Google’s advertising partners, the company registered fourth-quarter revenue of $1.29 billion, matching analyst expectations, according to Thomson Financial.

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