Updated from 10:51 a.m. EST

Wall Street is now two-for-two, with

Goldman Sachs

(GS) - Get Report

reporting better-than-expected fourth-quarter earnings on Thursday, as profits rose 23% from a year ago.

But compared with the third quarter of this year, Goldman's numbers were a disappointment, and fourth-quarter revenue did not meet expectations.

In the quarter, the big investment bank earned $1.19 billion, or $2.36 cents a share, compared with $971 million, or $1.89 cents a share, a year ago. Net revenue rose 13% to $4.58 billion.

Goldman beat the Thomson Financial consensus estimate for earnings but missed on revenue. Analysts had predicted the securities firm would earn $2.32 a share in the quarter and generate $4.77 billion in net revenue.

On Wednesday,

Lehman Brothers


kicked off the fourth-quarter earning season for Wall Street with a 22% earnings improvement over the 2003 period. The bond powerhouse easily beat analysts' forecasts, thanks to big gains in investment banking and asset-management fees.

Goldman's performance was not nearly as impressive. Compared with the third quarter of this year, normally a slow period for Wall Street firms, revenue was only marginally higher in the fourth quarter, rising 1%.

In midday trading, shares of Goldman were down $3.23, or 2.96%, to $106. The news dragged down other brokerage stocks including

Morgan Stanley



Bear Stearns


, which both report fourth-quarter numbers next week.

"It's a disappointing quarter," says Brad Hintz, a Bernstein & Co. analyst. "It is making everybody look forward to Morgan Stanley. Was Lehman the outlier, or was Goldman?"

While net revenue from investment banking at Goldman was up 19% from a year ago to $768 million, it was down 14% from the third quarter of this year. The sequential weakness was due to a 19% decline in fees from bond and stock underwriting and an 8% decline in fees from advising on corporate deals.

Compared with the third quarter, Goldman also took a big hit in fixed-income and commodities trading, something it normally excels at. In the fourth quarter, Goldman generated $1.46 billion from trading bonds and commodities, down 22% from the third quarter.

Things at Goldman, however, looked much sunnier when compared with the year-ago quarter. Fees from advising on corporate deals rose 37% from the year-ago period to $414 million. Revenue from fixed income and commodities trading was up 28%.

Goldman's earnings also got a boost from an unrealized $254 million gain from the firm's investment in the

Sumitomo Mitsui Financial Group


In his prepared comments, Goldman CEO Henry Paulson did not address the firm's quarter-to-quarter weakness.

"The year's record results underscore the strength and ability of the franchise to produce superior returns for shareholders," Paulson said.

In a conference call with analysts, Chief Financial Officer David Viniar says as long as the economy continues to improve in 2005, Goldman should thrive. But there was none of the bravado that Viniar has displayed at previous conference calls, when he's poked fun at analysts for widely underestimating Goldman's earnings.

For the full-year, Goldman earned $4.55 billion, up 52% from 2003. Earnings per share were $8.92 compared with last year's $5.87.

The sequential weakness at Goldman may take some of the luster off of the market's reaction to Lehman's earnings. Wall Street has been giddy of late with a flurry of big mergers and acquisitions and predictions of another banner year for investment banking activity in 2005.

"There was a pretty dramatic pick-up in merger activity the last couple of weeks, but whether that will continue will depend no economic growth,'' says Viniar.

Analysts, however, expect earnings on Wall Street to decline a bit next year as economic growth slows and the stock market is expected to post only modest gains.

"What an analyst will hope is that the reason M&A was down was just because a couple of large deals haven't closed," says Hintz.

Wall Street firms don't earn their fees for advising on a deal until after an acquisition closes. With all the wheeling and dealing in the corporate world in December, investment banks can look forward to collecting those fees sometime next year.