Google's growth cools, its stock takes a dive

Earnings Snapshots
This is an archived article that was published on in 2006, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Google Inc.'s rapid financial growth decelerated in the fourth quarter as the online search engine leader's profit fell below analyst expectations for the first time since its August 2004 initial public offering. The news rattled previously bullish investors, causing Google's stock price to plunge by more than 12 percent.

The company said Tuesday that it earned $372.2 million, or $1.22 per share, for the final three months of 2005. That represented an 82 percent increase from net income of $204.1 million, or 71 cents per share, in the previous year.

If not for a donation to launch its charitable foundation and stock compensation expenses, Google said it would have earned $1.54 per share. That missed the average estimate of $1.76 per share among 31 analysts surveyed by Thomson Financial.

Google released its results after the stock market closed Tuesday. Company shares plummeted $53.61 - 12.4 percent - in after-hours trading after gaining $5.84 to close at $432.66 Tuesday on the Nasdaq Stock Market. The shares had fallen by as much as 19 percent earlier.

The investor backlash also stung Google's two biggest rivals, Yahoo Inc. and Microsoft Corp. Yahoo's shares fell 58 cents, or 1.7 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 19 cents in after-hours trading.

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.

CEO Eric Schmidt told analysts during a Tuesday conference call that the fourth-quarter results topped the company's internal projections.

''We are very pleased with the performance on every level,'' he said.

Google's management has steadfastly refused to publicly project its earning potential, making it difficult for analysts to reach the calculations that investors use to appraise a company's value.

The company would have matched the average analyst estimate if not for a much higher tax rate during the fourth quarter, Chief Financial Officer George Reyes said during an interview Tuesday.

Google'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. The company got stuck with the higher bill because more of its fourth-quarter profit was taxed in the United States instead of in Ireland, Reyes said. Google expects its 2006 tax rate to be about 30 percent.

l Allstate Corp. said earnings dropped nearly 9 percent on sizable catastrophe losses from Hurricane Wilma, which battered south Florida in October. Allstate's net income totaled $1.04 billion, or $1.59 a share, down from $1.14 billion, or $1.63 a share. Excluding certain items, Allstate said operating income was down about 1 percent from a year earlier to $975 million. Per-share operating income rose 5 percent to $1.49, but was shy of the $1.52 per share estimate of analysts. Revenue was up less than 1 percent, to $8.95 billion.

l Symantec Corp., the world's biggest maker of anti-virus software, said profit fell 45 percent on costs for the acquisition of Veritas Software Corp. Net income dropped to $90.7 million, or 8 cents a share, from $163.6 million, or 22 cents. Sales rose 65 percent, to $1.15 billion.

l Kellogg Co., the world's largest cereal maker, said net income was $192.4 million, or 47 cents per share, up from $186.4 million, or 45 cents per share. Adjusted for an additional shipping week last year, earnings per share would have increased 16 percent. Kellogg said sales totaled $2.39 billion, nearly flat compared with a year ago and below Wall Street's target of $2.41 billion. Full-year income climbed to $980.4 million, or $2.36 per share, from $890.6 million, or $2.14 per share. Net sales of $10.18 billion were 6 percent higher than the $9.61 billion reported last year.

l Altria Group Inc., parent of the world's largest cigarette business and controlling shareholder of Kraft Foods, said profit rose 18 percent on strong international tobacco results. Altria earned $2.29 billion, or $1.09 per share, up from $1.95 billion, or 94 cents a share. Revenue increased 9 percent to $24.49 billion from $22.38 billion. For the full year, Altria's net income rose 11 percent to $10.44 billion, or $4.99 per share, from $9.42 billion, or $4.56 per share. Revenue increased 9 percent to $97.85 billion from $89.61 billion.

l Archer Daniels Midland Co., an agricultural processor, said earnings rose 17 percent as profit nearly doubled in its corn processing business. Decatur-based ADM, one of the world's largest processors of oilseeds, corn, and wheat, said quarterly sales grew 3 percent. What the company terms ''net sales and other operating income'' rose to $9.3 billion from $9.06 billion a year ago.

l Honda Motor Co.'s net profit dropped 12 percent on losses unrelated to its auto business as Japan's No. 3 carmaker reported booming sales. Honda Motor Co. reported its best ever quarterly sales during the October-December period at $21 billion, up 16 percent from the same period a year ago. Net profit totaled $1.1 billion, down slightly from a year earlier.

l Hilton Hotels Corp., the third-biggest U.S. hotel company, said profit rose 62 percent, as the company charged higher room rates and sold six hotels. Net income increased to $105 million, or 26 cents a share, from $65 million, or 16 cents. Sales rose 2.8 percent to $1.08 billion.

l Diebold Inc., the world's second-largest seller of automated teller machines, said profit fell 77 percent on costs to cut jobs and close a plant. Net income declined to $14.6 million, or 21 cents a share, from $62.8 million, or 87 cents. Sales rose 15 percent to $817.6 million.

l Merck & Co. said revenue stalled as sales of its biggest product, the Zocor cholesterol pill, fell 18 percent because of competition from cheaper generic copies. Net income rose 1.7 percent to $1.12 billion, or 51 cents a share, from $1.1 billion, or 50 cents. Revenue increased slightly to $5.77 billion from $5.75 billion.

l Wyeth posted a profit as higher sales of the Prevnar meningitis vaccine and Enbrel arthritis treatment helped raise revenue. Net income was $731.7 million, or 54 cents a share, compared with a loss of $1.76 billion, or $1.32. Sales rose 2.1 percent to $4.75 billion from $4.65 billion.