Google Inc.
(NDAQ: GOOG) shares fell today after the company announced
disappointing fourth quarter earnings showing slower growth than
analysts predicted. The search giant earned $4.43 per share on revenue
of $3.39 billion compared to analyst expectations of $4.44 per share on
revenues of $3.45 billion. The company continues to feel the heat from
rising traffic acquisition costs and operating expenses that are
putting pressure on its margins. Shareholders sold on the news sending
shares down more than 9 percent in early trading.

Google’s traffic acquisition costs have been increasingly lately due
to the rising guaranteed payments the company owes through advertising
deals to MySpace, Ask.com and others and without operating leverage.
There is also larger concern that online ad spending may be hurt by any
recession in the United States and abroad. Since Google derives the
vast majority of its revenues through Google AdWords, this could spell
trouble for the company. And finally, there is also the rising concern
over declining keyword costs that has affected the entire industry as
it matures.

Google is taking some steps in the right direction, however. First,
the search giant is finally starting to control its head count by
hiring just 6% over the third quarter. This was a major problem last
year that is one of the culprits behind its high operating expenses.
Secondly, Google generated more than 50 percent of its traffic
internationally and there has been substantial improvement in the
international markets that should drive pay-per-click growth.

In the end, there are no short-term catalysts that will help Google
so investors may want to shy away from the stock until things improve.
It will also be interesting to see how a combined Microsoft-Yahoo will
affect the search giant that currently commands a 58% market share.
Combined, these are all factors that make Google a stock worth watching!


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Google Inc. (GOOG)
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