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Google Shares Drop Despite Increased Q4 Revenues

Steve McCaskill is editor of TechWeekEurope and ChannelBiz. He joined as a reporter in 2011 and covers all areas of IT, with a particular interest in telecommunications, mobile and networking, along with sports technology.

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Wall Street reacts as cost-per-click advertising revenues fall

Despite announcing that it had exceeded revenues of $10 billion (£6.5bn) for the first time, Google failed to meet the expectations of analysts, who had predicted stronger fourth quarter (Q4) results.

Declining search advertising rates compounded the disappointment and contributed to a fall of nine percent of Google’s share price.

Wall Street disappointment

Google announced that net income rose to $2.71 billion (£1.75 bn), a 6.4 percent increase from $2.54 billion (£1.64 bn) during the same period last year, while its Q4 profit was up to $9.50 (£6.13) a share from $8.75 (£5.65).

However, analysts had expected $10.49 (£6.78) a share and were surprised as Google rarely misses their expectations, especially during Q4 when it usually posts its strongest results, fuelled by adverts for online shopping during the Christmas period. In addition, operating expenses increased by 35 percent, partly due to increased spend on hiring and advertising.

What surprised analysts the most however, was the eight percent decrease in revenue from cost-per-click advertising, the first such drop in two years. The company put this down to the impact of foreign currency fluctuations and changes to the company’s advertising formats.

Google executives said that the new advert formats resulted a 34 percent year-on-year increase in the number of clicks by users, even though the format changes may have impacted the prices negatively.

However some analysts have questioned whether mobile advertising, which is generally believed to command lower rates, played a bigger role in the decline than suggested, even though it was predicted last year that mobile advertising would lead to increased revenues for Google.

Other analysts have predicted a tough year for Google in 2012 as a result of court cases, competition from Facebook and the acquisition of Motorola Mobility, while its advertising policy has been brought under scrutiny after it admitted that it profited from advertisements from illegal enterprises which sold fake IDs, cannabis and non-existent Olympic tickets.