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January 31, 2006
Google Reports Profit Below Expectations; Shares Fall Sharply

By THE ASSOCIATED PRESS
Filed at 4:42 p.m. ET

SAN FRANCISCO (AP) -- Google Inc.'s fourth-quarter profit nearly doubled, but fell well below the high expectations for the online search engine leader.

The Mountain View, Calif-based 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 plunged $59.16 -- 13.7 percent -- in after-hours trading after gaining $5.84 to close at $432.66 Tuesday on the Nasdaq Stock Market. At one point, the stock was down more than 19 percent in late trade.

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.

A much higher tax rate during the fourth quarter appeared to contributed to the earnings shortfall.

The company said its 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.

Investors have been fretting about Google's latest earnings report since rival Yahoo Inc. released a fourth-quarter profit that fell a penny below analyst estimates. That news, released two weeks ago, raised fears that the Internet's advertising market didn't expand as much as most people anticipated during the pivotal holiday shopping season.

The jitters surrounding Google were exacerbated after the company vowed to fight a Bush administration subpoena demanding one week's worth of search requests as the federal government seeks to revive a law designed to shield children from online pornography.

Google then provoked more angst by launching a new search engine in China that will censor some results to comply with the country's free-speech restrictions.

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