Google Misses by a Mile

Gross revenue rose 86% from a year ago and 22% sequentially to $1.92 billion. The company said fourth-quarter traffic acquisition costs, reflecting the amount paid out to ad partners, was $629 million, or 33% of advertising revenue.

Operating income fell to 29.7% of revenue from 33.5% in the third quarter on a generally accepted accounting principles basis. Non-GAAP operating income was 37.4% of revenue, against 37.8% in the third quarter.

Revenue from Google-owned sites rose 24% sequentially to $1.1 billion and represented 57% of total revenue. Revenue from Google's partner sites rose 18% from third-quarter levels to $799 million, or 42% of total revenue.

Revenue from outside the U.S. contributed 38% of total revenue, compared to 39% in the third quarter and 35% a year ago. International revenue reflected the unfavorable impact caused by the appreciation of the dollar and stronger seasonal trends in the U.S. relative to the international business. Had foreign exchange rates remained constant from the third quarter through the fourth quarter, revenue would have been $12 million, or 0.6%, higher. Had foreign exchange rates remained constant from 2004 through 2005, revenue would have been $40 million, or 2.1%, higher.

Schmidt also quashed speculation that the company is interested in getting into the hardware business, with the much-discussed if so far nonexistent Google Cube.

"We are very pleased with the performance of our business on every level," Schmidt insisted despite the steep selloff and the failure of analysts to preface their remarks on the call with the obligatory "great quarter, guys." Google also believes that many international markets are "underpenetrated,'' Schmidt says.

Google's fans remained upbeat.

"Will it come back?" asks Ghriskey of Solaris. "Of course it will. This is a great company on a high-growth trajectory.''