Google reports sharp decline in profits

Google Inc. reported sharply lower fourth-quarter profits Thursday from bad investments, while its core business showed resilience amid the global recession.

The results, which beat analysts' expectations, were enough to dispel investor concerns about how the company is weathering the gloomy economy. But at the same time, the earnings highlighted the fact that the Mountain View Internet leader isn't immune from the downturn.


Google said fourth-quarter profit fell 68 percent to $382 million ($1.21 per share), from $1.2 billion ($3.79) a year ago. Much of the decline was attributed to a $1.09 billion charge for soured investments in wireless provider Clearwire and in the AOL Web portal, owned by Time Warner.

Excluding various expenses like the write-downs, Google would have earned $5.10 per share. Analysts had expected a $4.95 per share profit on that basis.

Google's fourth-quarter revenue increased 18 percent to $5.7 billion, up from $4.83 billion for the equivalent period in 2007.

"Anybody who is concerned about buying Google stock is probably breathing a sigh of relief," said Jason Helfstein, an analyst with Oppenheimer & Co. "Google is still growing, and you can't say that about a lot of media companies."

Google's shares rose $5.40, or 1.8 percent, in after-hours trading to $311.90. Over the past year, Google's shares have tumbled 47 percent as investors worried about a slowdown in advertising and the company's increasing maturity.

In reaction to the falling stock, Google said Thursday it would allow employees to exchange their options for ones that have a lower exercise price based on where the stock is trading March 2. Executives described the program as a way to retain and motivate employees, 85 percent of whom hold options that are worthless at their current exercise price.

Sandeep Aggarwal, an analyst with Collins Stewart, called the option exchange, which is expected to cost $460 million, expensive and complained that it will harm existing shareholders.

Google executives have argued that the company is more resistant to recession than many other media companies. Marketers are less likely to cut their spending on search ads - Google's main business - because it is more targeted and its success is more easily measured than other forms of advertising, they said.

The fourth-quarter results bolster Google's argument, at least in relation to the final three months of 2008. Revenue grew in most advertising categories, the company said, helped by an 18 percent increase in ads clicked on by users.

Still, Eric Schmidt, Google's chief executive, described the fourth quarter as "the easy part" because of retailers trying to unload excess inventory during the holidays by increasing advertising. The coming months, he said, are uncharted territory, saying he has no idea how long the recession will last.

As a precaution, Google has trimmed expenses such as dismissing 100 recruiters this month after cutting a significant number of contractors. Hiring has slowed considerably with the company adding 99 workers in the fourth quarter for a total of just over 20,222, in contrast to the hundreds of employees added to the payroll in some recent quarters.

At the same time, Google has cut or left in limbo several products that failed to catch on, most recently a service for advertising in print newspapers.


This article appeared on page C - 1 of the San Francisco Chronicle