Google shares fell 4.6 percent on Tuesday

[Avril]

Investors took fright from signs that growth is stalling at the leading internet company as Google shares fell 4.6 percent on Tuesday.

ComScore, the research company, reported clicks on Google advertisements in the US last month were down 0.3 per cent year-on-year at 532m. This compared with 13 per cent growth in December and 27 per cent growth in November.



Google shares closed down 4.6 per cent at $464.19 having been down 7 per cent at one point following a 4 per cent fall on Monday. The stock is down 20 per cent in the past month and nearly 40 per cent off its all-time high of $747 last November.

Google has been hit by disappointing fourth-quarter earnings as revenues rose 52 per cent compared with analysts’ expectations of 55 per cent, the news of a potential Microsoft-Yahoo combination that could create a more powerful rival and by the latest data suggesting feeble growth in the US.

Analysts reacted negatively to the news on Tuesday. UBS cut its price target for Google from $650 to $590 while BMO Capital Markets cut its target from $690 to $590.

Henry Blodget, the influential blogger and former analyst, described the ComScore figures as “shockingly bad” and a disaster for Google.

Mark Mahaney, Citigroup analyst, said the decline could be caused by Google’s ongoing efforts to improve the lead quality for advertisers and the user experience for searches.

But he added that “a macroeconomic dampening of commercial queries by searchers” could also be a factor. Fears that Google could become a victim of a US economy flirting with recession appeared to be the main factor in the share sell-off.

ComScore’s data showed a 40 per cent growth year-on-year in searches on Google’s US websites in January but this had failed to translate into a growth in click-throughs on adverts.

The effect on Google’s revenues is unclear – ComScore does not report the price being paid by advertisers for each click and Google could have attracted increased prices per ad-click if it had improved the quality of the leads being provided.

Nielsen Online released data on Monday showing that Google increased its lead in search in the US in January. It had 4.2bn search queries for a share of 56.9 per cent, up from 56.3 per cent in December. Yahoo improved from 17.7 per cent to a 19 per cent share and Microsoft’s share fell from 13.8 per cent to 12.1 per cent.

Microsoft made a takeover offer for Yahoo on February 1 that the company rejected subsequently.

The combined companies could pose a bigger threat to Google in competing for an online advertising market that Microsoft expects to grow from $40bn in 2007 to $80bn (£40bn) in 2010.