Google Bandwagon Creaks On

"You had a psychological hit here, but not a fundamental hit,'' says Mike Binger, a fund manager at Thrivent Financial, which owns Google shares. "You knew that somewhere down the road that the company would just hit Street guidance instead of wildly exceeding it.''

Binger estimates that the company could earn $9 a share this year and $12 next year.

Some bulls on the stock were even moved to defend the company's claim that high overseas costs caused it to pay a bigger tax bill this quarter than it could have foreseen.

"The higher tax rate that led to the EPS shortfall versus our estimates is due to the company's practice of estimating its tax provision on a full-year basis and then allocating the expense among the quarters," wrote Goldman Sachs analyst Anthony Noto, who reiterated his outperform rating on Google and maintained a $500 "implied value" for the stock, in a note to clients Wednesday. "This methodology results in a disproportionate effect on the fourth quarter in order for the difference in the full-year provision."

But investors clearly thought the company could do better, since it had beaten expectations for three straight quarters. And the company's poor quarter, coming as it did two weeks after a similar performance by rival Yahoo! (YHOO Quote), failed to dispel worries among some investors about the health of the tech sector. Even so, the Nasdaq Composite Index rallied late in the morning to be flat on the day.

"The outlook remains solid and one of higher growth than just about any other company," writes Lauren Rich Fine, an analyst with Merrill Lynch who has a neutral rating and has been more cautious about Google than many of her competitors. "However, the string of positive surprises has been broken and costs are likely to continue to escalate."

Operating and sales and marketing expenses were higher than Rich Fine expected. Google executives said on the conference call that they were increasing their spending to keep up with the rapid growth of their business, a line that many fans were inclined to believe.