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January 31, 2006

Google disappoints Wall Street

Posted by David Hunter at 6:38 PM ET.

Google earnings lag expectations

Google Inc. said late Tuesday fourth-quarter profit rose 82% as the world’s largest provider of Internet searches expanded its lucrative online advertising business.

Sounds like a good business to me!

However, its earnings excluding certain charges fell well short of Wall Street estimates, hurt by a higher-than-expected tax rate, sending its shares plunging as much as 19% in late trading after the results.

My interest is largely what it means for Microsoft’s search efforts, and that’s apparently not very much since the search and advertising business seems to be healthy and the reasons for not meeting expectations are pure Google including the following:

CEO Eric Schmidt told analysts during a Tuesday conference call that the fourth-quarter results topped the company’s internal projections. Management has steadfastly refused to publicly project its earning potential, making it difficult for analysts to reach the calculations that investors depend on for appraising a company’s value.

A much higher tax rate during the fourth quarter accounted for the bulk of Google’s earnings shortfall, Chief Financial Officer George Reyes said during the conference call.

The company’s effective tax rate in the fourth quarter was nearly 42 percent, well above the roughly 30 percent rate during the second and third quarters. Google also expects its 2006 tax rate to be about 30 percent.

However, there were repercussions:

The investor backlash also stung Google’s two biggest rivals, Yahoo Inc. and Microsoft Inc. Yahoo’s shares fell 83 cents, or 2.4 percent, after shedding 68 cents to close at $34.38 on the Nasdaq, where Microsoft’s shares gained 15 cents to close at $28.15 before retreating by 21 cents in after-hours trading.

Finally, some interesting statistics:

Revenue from Google-owned sites rose 24% sequentially to $1.1 billion and represented 57% of total revenue. Revenue from Google’s partner sites rose 18% from third-quarter levels to $799 million, or 42% of total revenue.

Revenue from outside the U.S. contributed 38% of total revenue…

More by following all the links.

Filed under Coopetition, Google

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