The Wall Street Journal-20080201-Google-s Earnings Growth- Ad Clicks Slow

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Google's Earnings Growth, Ad Clicks Slow

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Internet titan Google Inc.'s revenue and profit fell short of Wall Street expectations in the fourth quarter amid slower growth in consumer clicks on its advertisements and higher fees paid to partners.

But Chief Executive Eric Schmidt said the Mountain View, Calif., company hadn't seen any impact from macroeconomic softening. "As far as we can determine, the answer is no," he said in an interview.

Google's shares fell 6.8% in after-hours trading after it reported fourth-quarter profit rose 17%, compared with 46% profit growth in the third quarter. Revenue rose 51% from a year earlier.

Investors have worried that a consumer slowdown could affect online advertising, which represents 99% of Google's revenue. Slowing growth in the number of times consumers clicked on Google's ads, which appear alongside its Web-search results and on partner sites, could heighten such concerns. Such paid clicks increased 30% in the fourth quarter from a year earlier, compared with a roughly 50% average increase during the previous four quarters. Google charges advertisers only when a consumer clicks on such an ad.

But Mr. Schmidt said the slowing growth didn't indicate any decreased consumer commercial activity online, and attributed the deceleration to other factors. He and other executives cited Google changes that lowered the click growth rate, such as a modification to site design that makes it harder for users to accidentally click on ads.

In a conference call, Google executives highlighted the potential for growth outside the U.S. "The international market is very, very nascent, with enormous potential for what we could do over time," said Mr. Schmidt. International operations accounted for 48% of revenue in the fourth quarter, in line with the previous quarter.

In 4 p.m. Nasdaq Stock Market composite trading, Google's shares rose $16.03, or 2.9%, to $564.30. After hours, shares fell $38.60 to $525.70.

Rival Yahoo Inc. earlier this week indicated that it saw weaker online-ad spending during the fourth quarter among some categories affected by broader economic issues, such as financial, travel and retail advertisers. But Yahoo President Susan Decker said, overall, the company had "seen a solid start to the year."

Google said the percentage of its revenue paid to partner sites that carry ads Google sells increased in the quarter to 30% from 29% in the third period. The company said this was due to the performance of some of the deals in which Google guarantees revenue payments to partners, referring specifically to challenges in generating ad revenue from social-networking sites. "We've found that social-networking inventory isn't monetizing as well as expected," said George Reyes, Google's chief financial officer. Google has a deal to sell ads that appear on News Corp.'s MySpace.com social-networking site, but Google declined to comment on that relationship. (News Corp. is owner of The Wall Street Journal publisher Dow Jones & Co.)

Google's employee growth rate dropped sharply during the fourth quarter to 6% from the third quarter, compared with 15% the period before.