SAN FRANCISCO ? What was supposed to be a celebration of the most prosperous quarter in Google's 13-year history instead turned into a major letdown.
The disappointment came with Thursday's release of fourth-quarter earnings that showed the Internet search leader fetched less money per click on its ubiquitous online ads.
That came as an unsettling surprise because investors had assumed a surge in online holiday shopping during November and December would enable Google Inc. to charge more for its ads. Instead, the average price decreased by 8 percent from the same time in 2010.
Google executives traced part of the decline to technical changes aimed at delivering more ads that attract people's interest. Those tweaks apparently paid off as the total clicks on Google's ads increased 34 percent from the previous year.
The lower prices still contributed to a dramatic slowdown in Google's earnings growth. The performance fell well below analyst estimates.
The weakening euro amid Europe's government debt woes also hurt Google as revenue collected on the continent converted into fewer dollars.
Investors weren't in a forgiving mood. Google shares plunged $57.07, or nearly 9 percent, to $582.50 in extended trading after the results were announced.
The showing could renew Wall Street concerns about Google's moneymaking prowess under the direction of co-founder Larry Page, who replaced Eric Schmidt as CEO last April. Page, 38, took the job with a reputation for being more willing to invest in long-term projects at the expense of short-term profits. In the latest quarter, Google's operating expenses rose 34 percent from the previous year, outpacing a 25 percent increase in revenue.
"I am very happy with our results overall in the quarter," Page said during Thursday conference call.
More people probably would have shared in his ebullience if expectations hadn't been set so high.
With more people than ever before shopping for holiday gifts and bargains on computers and mobile device, Google was supposed to scale new financial heights in the October-December period.
Analysts had forecast Google would earn $3 billion for the first time during any three-month period since the company's 1998 inception. Instead, Google made slightly less money than it did a quarter earlier.
The company earned $2.7 billion, or $8.22 per share, in the fourth quarter. That's just a 6 percent increase from $2.5 billion, or $7.81 per share, at the same time in 2010.
If not for certain items, Google said it would have earned $9.50 per share. Analysts surveyed by FactSet had expected $10.51 per share.
Revenue totaled $10.6 billion, up from $8.4 billion in the previous year. It's the first time Google's quarterly revenue topped $10 billion, but even that figure fell shy of analyst projections.
After subtracting ad commissions, Google's revenue totaled $8.1 billion. That was about $300 million below the average analyst forecast. Revenue would have been about $240 million higher had exchange rates in Europe remained steady with the third quarter's rates, according to Patrick Pichette, Google's chief financial officer.
While investors fixated on Google's falling ad prices, Page hailed the inroads the company is making beyond the Internet search engine that brings in most of its revenue.
The Plus service that Google introduced seven months ago as an alternative to Facebook's social network now has more than 90 million users, Page said. That's more than doubling from about 40 million users three months ago. Facebook still has a big lead with more than 800 million users after nearly eight years in existence.
Google's Gmail service now has 350 million accounts, and the company's Android mobile software is now running on 250 million smartphones and other devices, Page said.
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