/ 1 February 2006

Google shares battered on profit news

Google said on Tuesday that fourth-quarter profits surged 82%, but its shares took a battering in after-hours trading because the figure was below Wall Street expectations.

Google’s earnings were hurt by a higher-than-expected tax rate, sending its shares plunging as much as 19% in after-hours trading.

At 4am GMT, the share had recovered a little but was still 12% down on its regular close.

“The market always wants to see more,” said industry analyst Tim Bajarin, of Creative Strategies. “It will rebound. Google represents one of the most important companies for managing media in the future, period.”

The Mountain View, California-based company said it earned net income of $372,2-million, or $1,22 a share, in the last three months of 2005.

Excluding the cost of stock option expenses and other charges, Google said its earnings came to $1,54 a share, much less than the figure of $1,76 expected by analysts.

Chief financial officer George Reyes said on a conference call that “most of the [earnings] miss was tax-related”.

Google had a 41,8% effective tax rate, far higher than its forecast for an annual rate of 30%.

The company also invested more money in infrastructure and research and development than some analysts had expected.

Sales rose 86% to $1,92-billion as Google gained market share from search rivals such as Yahoo! and Microsoft’s MSN unit.

“We are very pleased with our results for the fourth quarter, as we achieved excellent performance across our businesses,” Google chief executive Eric Schmidt said in a statement. “We generated significant revenue growth in our core search and advertising business, driven by continued strength in traffic and monetisation.”

Over 2005, the Silicon Valley firm’s net income rocketed 267% to $1,47-billion on revenues of $6,14-billion, which was nearly double the 2004 figure.

“I was surprised that the stock got knocked down so bad,” Bajarin said. “We still see Google’s position in the industry as strong as ever.”

Google’s was evidently a victim of “guilt by association”, with impressive earnings reports by rivals causing investors to expect more of the internet superstar.

Google recently launched an online video marketplace where people can search for, watch and buy television shows, movies, music videos, documentaries and personal productions.

While Google has denied rumours of a possible tie-up with Napster, the creation of Google Video indicates the company is planning a music service as well, Bajarin said.

“We are targeting innovation,” Google co-founder Larry Page said in the teleconference. “We believe mobile applications are essential.” — AFP