Google Earnings Beat the Street, but Investors Bolt

Web titan Google (GOOG) reported quarterly results that beat Wall Street estimates Thursday, but the figures weren't good enough to keep investors from selling on the news. In the fourth quarter of 2009, Google booked nearly $2 billion in profit and returned to double-digit revenue growth for the first time in a year. During a conference call with analysts, CEO Eric Schmidt tried to clear up confusion about the company's mobile strategy and declared that Google would like to stay in China -- only under "somewhat different terms."The results confirm that Google's core Web-search advertising business remains strong and performed well during the recession. Google has long argued that it can withstand tough economic times better than other companies because its advertising products are targeted, reliable and measurable. In December, the company increased its search-market share lead over rivals Microsoft (MSFT) and Yahoo (YHOO).

Investors who may have been looking for even stronger numbers sold off Google shares after hours, sending the stock down more than 5% to 552.75. The sell-off mirrored IBM's Tuesday earnings report, which was also strong, but saw a post-report sell-off. Taken together, the two reports suggest that tech issues are overbought, even as the industry shows sign of picking up steam.

Expectations "got higher as they came closer to reporting and they delivered fundamentally sound numbers, but did not deliver a blowout," Martin Pyykkonen, senior analyst at Janco Partners, told Reuters. "I think the stock will recover. I don't think it will fall through the floor."

Neither does anyone else on Wall Street. For the last five years, betting against Google has been a sure-fire way to lose money.

'Back in Business Full-Blast'

"As we said last year, we are not immune to global economic trends," Eric Schmidt, Google's CEO, told analysts. "But we fared better than most firms in the global economic downturn and hopefully we'll fare better during the recovery. It really was an extraordinary end to a roller coaster year."

"We're back in business full-blast," Schmidt said, adding that the company will "continue in our quest which will never be realized, to create the perfect search engine."

"As we enter 2010, we remain hugely optimistic about the Internet and are continuing to invest heavily in technological innovation for the benefit not only of our users and customers, but also the wider web," Schmidt said in statement accompanying the release. Google does not offer forward-looking guidance.

Schmidt said the company is seeing a steady stream of businesses, governments and schools moving from "a PC-centric model to a web-services model." In other words, people are adopting cloud computing, in which data is storied in remote servers and accessed via the Internet. "The trend there is clear," Schmidt said. "Everyone is moving there and we're going to be one of the leaders."

Keeping It Brief On China

Google's earnings report comes just over one week after Google shocked the tech world by declaring it would no longer censor its Chinese-language search engine -- the result of an investigation that revealed a massive, China-based cyber-attack that compromised Google corporate security and targeted human rights workers.

Since the announcement, the situation has escalated, threatening to become an international diplomatic dispute. Just hours before Schmidt spoke, U.S. Secretary of State Hillary Clinton condemned web censorship and cyber-attacks -- and backed Google. "American companies need to take a proactive role in challenging censorship," Clinton said. "They need to consider what's right, not simply what makes a quick profit."

During the conference call, Google executives was tight-lipped, even slightly conciliatory, toward China. "We're in conversations with China, but our business there is unchanged at the moment," Schmidt said, though he added: "In a reasonably short time-frame we'll be making some changes."

"We wish to remain in China," Schmidt said. "We like the Chinese people and we like our Chinese employees. We'd like to remain there under somewhat different terms, but we would like to stay there."

Clearing Up Confusion Over Mobile

Schmidt sought to rectify what he called "confusion" about Google's strategy in the mobile space -- there has been substantial debate about whether Google's priority is advancing its Android mobile operating system, or entering the mobile hardware market. Earlier this month, Google announced its first handset, the Nexus One, to great fanfare.

"The Nexus One is a new way of buying a phone," Schmidt said, "You purchase a phone online, buy service from one or more service providers and have it just work." Of course, if that all were the case, it would truly be a "new" way of buying a phone -- but the launch fell flat as users complained in droves about shoddy service and poor customer service.

Schmidt said Google's mobile search traffic grew five-fold in the last three years. He declined to comment on rumors that Apple might ditch Google in favor of Microsoft's Bing as the default search engine on the iPhone.

"Apple is a very well run company, and as a former board member, I have a special spot for Apple in my heart," Schmidt said. "We have a a couple of partnerships with them and we also compete with them in a few areas, and I think that's going to be a fairly stable situation for some time to come."

Net Income Beat Consensus

Google reported net earnings of of $1.97 billion, or $6.13 a share, up from $382 million, or $1.21 a share, one year ago, when the company took a one-time charge of $1.1 billion due to a decline in the value of some of its investments. Total fourth-quarter revenue came in at $6.67 billion, up from $5.7 billion a year earlier, a 17% increase.

Excluding certain charges, Google's net income was $2.19 billion, or $6.79 a share, well above the Wall Street consensus of of $6.43 a share. Google's U.S. paid clicks, which measure how often users click on Google's online ads, increased 13% from a year earlier and 9% from the third quarter.
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