Google profit rises, revenue growth in line

By Michele Gershberg

NEW YORK  - Google Inc. said quarterly profit nearly tripled, helped by a lower tax rate, but revenue growth was largely in line with Wall Street expectations despite some hopes of an upside surprise.

The news pushed shares in the Web search leader down more than 3 percent in after-hours trading.

"The stock is down because they didn't blow out the numbers. Expectations have come up recently," said Martin Pyykkonen, an analyst at Global Crown Capital. "As expected they gained share relative to Yahoo in paid search but not by a wide margin."

Google said net income for the fourth quarter grew to $1.03 billion, or $3.29 per share, compared with $372.2 million, or $1.22 per share in the year-earlier quarter.

Excluding stock-based compensation and amortization charges, as well as a tax credit, earnings came to $3.18 per share, beating the average Wall Street analyst forecast of $2.91 according to Reuters Estimates.

Gross revenue rose 67 percent to $3.21 billion. The figure includes $976 million in traffic acquisition costs (TAC), the financial cut that affiliated Web sites receive for featuring Google advertising.

Analysts on average had been looking for revenue of $3.14 billion, representing a year-over-year-growth rate of 64 percent. Forecasts ranged from $2.99 billion to $3.27 billion.

The revenue growth rate is a closely watched number as investors gauged Google's ability to capitalize on Web advertising against rivals such as Yahoo Inc. and Microsoft Corp.

Google has posted steady market share gains for most of the past year in Web search and is expanding into a variety of new markets, aiming to sustain its rapid growth. For the 2007 year, the consensus revenue forecast estimates about 45 percent growth, according to Reuters Estimates.

The company is also pushing into a variety of new advertising formats beyond its classic pay-per-click text ad business, including radio, video, newspaper and corporate brand ads.

Heartened by these gains, Google's stock has jumped above $500. Before the results, the stock was up 9 percent in the first month of 2007 compared with a 1 percent rise for the Standard & Poor's 500 Index in the same period.

Google shares were trading after-hours at $487.75, down from their Nasdaq close of $501.50.

(Additional reporting by Sue Zeidler)