Bad 'Click' Report Clobbers Google

A report shows response to the site's advertising slowed in January.
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Updated from 1:14 p.m. EST

SAN FRANCISCO -- A report saying fewer

Google

(GOOG) - Get Report

users clicked on the site's advertising in January sent the Internet giant's stock lower Tuesday.

Shares were recently down more than 6% to $456.16 -- close to a 52-week low -- a day after research firm comScore released a report showing Google's Web search paid clicks -- the company's main source of revenue -- falling 0.3% in January compared with a year ago.

That was in sharp contrast to December, when paid clicks grew 13% compared with a year ago.

Analysts took the numbers as a sign that Google may not meet first-quarter estimates and is beginning to feel the effects of a sluggish economy. Wall Street expects Google to earn $4.67 a share on revenue of $3.68 billion.

Bear Stearns analyst Robert Peck said the January numbers are cause for concern.

"While this is one data point for domestic google.com only and from one source, which may or may not be accurate, it is a concerning data point and somewhat reflects what we have heard from SEMs (search engine marketers) -- that they were not seeing a high volume of clicks from consumers possibly due to the economic slowdown," Peck wrote in his research.

Paid clicks measure the number of times that users click on ad-supported links.

Nonetheless, Peck rates the stock as outperform. "Google remains the dominant company within the online advertising industry, with healthy growth prospects that should lead to market share gains, a strong balance sheet, and generates significant amounts of free cash flow," he said.

For Google, comScore reported 532 million domestic paid clicks in January, down 12% compared with October.

Yahoo!'s

(YHOO)

domestic paid clicks totaled 242 million, up 15% vs. a year ago but down 3% sequentially.

Microsoft's

(MSFT) - Get Report

domestic paid clicks totaled 93 million, down 9% vs. a year ago and flat sequentially.

Microsoft is looking to merge with Yahoo! to narrow that gap in paid clicks with Google, but so far Yahoo! has refused.

Jordan Rohan, an analyst for RBC Capital Markets, said that although the market is focused on volume, revenue-per-search improvements may mitigate volume declines for Google. He added that Europe is seasonally strongest in the first quarter, and March is the most significant contributor, "hence it may be too early to call for the worst-case scenario."

"We believe that investors' fear over weak paid-click data from Comscore is overblown," he wrote in his research. "Our scenario analysis suggests even if Google misses 1Q consensus EPS 3% and 2009 estimates are lowered by 15%, shares are currently trading at 21x."

Rohan rates Google as "outperform" with a price target of $675.