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After Hours, Investors Flee Google

The Fear stops by with lower net income numbers

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Google mildly missed analyst expectations for Q4 2007 (the company famously does not provide guidance) and late trading has punished the stock.

If anyone needed to understand why CEO Eric Schmidt has been selling Google stock at a white-hot pace since the IPO unlocked, today’s financial announcements from the company should fill in the blank, rub it with a highlighter, dump glue on the letters, and pour glitter on the glue: the wild ride had to end sometime.

The dominant search engine and advertising company experienced a hiccup when its search market share dropped, ever so slightly, in December. Shares of GOOG spent the first month of the new year in a decline.

Once the penny dropped after markets closed, and Google made its earnings announcement, after hours trading began in earnest. At 6:52 ET, GOOG traded at $525.86, nearly 7 percent below its close of $564.30.

Revenues for Google came in fine, hitting $4.83 billion for Q4 2007. Paid ad clicks on its sites and partner placements rose 9 percent from Q3 2007. But then there was net revenue, all $3.39 billion of it, $4.43 earnings per share, both figures off what analysts expected.

The Fear dropped by at that moment to say hi, on the way to the fridge to pick up a light snack. Fickle investors responded as one might expect, hopping off the train before it rounds the curve, destination unknown.

Remember social networking, the big time next great thing in advertising, the reason for the $900 million deal Google made with Rupert Murdoch to lock up MySpace? Check out what Eric Savitz observed:

Speaking on the company’s post-earnings conference call, Google (GOOG) CFO George Reyes said the company has found that “social networking inventory is not monetizing as well as expected,” leading to higher than expected traffic acquisition costs. TAC of $1.4 billion was 30.3% of ad revenue, up from 29.1% in the third quarter.

This has huge nasty implications for social networking sites which I suspect you will be hearing a lot about in the days ahead.

Oh yes, especially since Mary Meeker of Morgan Stanley asked why the hell AdSense revenue for Q4 was more than $52 million lower than what she expected, when Google reported $196 million in AdSense revenue for the quarter. More questions will be asked. Don’t expect answers.

Google isn’t losing its position in search and advertising overnight, not to Yahoo or Microsoft, or anyone else. They may lose some of the fairweather investors, but those who stick around, who suspect Google might be the anonymous 700MHz spectrum bidder who pushed the auction past the $4.6 billion reserve, who think the next big play will be Google Airwaves and a sea change in the mobile business…

That’s a story for another time.

After Hours, Investors Flee Google
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