Traders Gag on Google

The stock swoons after the search giant misses Wall Street estimates.
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Updated from Jan. 31

Google's

(GOOG) - Get Report

fourth-quarter profit grew as revenue climbed 51%, but the company's results were below Wall Street estimates, sending its stock diving.

Shares of Google dropped 7% in premarket trading Friday to $525.

For the quarter, net income grew to $1.21 billion, or $3.79 a share, from $1.03 billion, or $3.29 a share, a year earlier.

Investors Want Answers From Google

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Adjusted for certain items, Google earned $1.41 billion, or $4.43 a share. Analysts were expecting $4.44 a share.

Revenue grew to $4.85 billion. Adjusted for traffic acquisition costs, revenue came in at $3.39 billion, below analysts' expectation of $3.45 billion.

"We're very pleased with our performance this quarter," said Eric Schmidt, CEO of Google. "It reflects strong momentum in our core business, growing receptivity to our new business initiatives, and improved discipline in managing our operating expenses."

Google-owned sites generated $3.12 billion, or 65% of total revenue during the quarter, as compared to 58% of revenue for the same period a year ago and 14% in the third quarter.

Google's partner sites -- known as the AdSense network -- generated $1.64 billion, or 34% of total revenue during the quarter, a 37% growth in network revenue compared to the same period last year, and a 12% rise since the third quarter of 2007.

International revenue accounted for 48% of total revenue during the quarter, compared to 44% during the same period last year and 48% during the third quarter of 2007.

Paid clicks grew 30% compared to the same period a year ago and 9% compared to the third quarter of 2007.

In a conference call for investors, Google said that a widely anticipated economic downturn -- which many observers argue has already begun -- did not slow down its business during the quarter. "We have not been able to detect such effects from macroeconomic trends," Google President of Technology Sergey Brin said.

In fact, the company said that if a slowdown were to occur, the company's cheap and measurable form of advertising could become even more popular with advertisers. "We just offer such a great ROI

return on investment for advertisers that they can see and measure ... they have great incentive to get as much profitable inventory on Google as they can."

Analysts also probed the company about growth opportunities beyond search advertising.

Google presented a bullish outlook for display advertising, video, and mobile -- three key areas the company had made significant strides in during 2007.

Meanwhile, with the shares already under pressure from the quarterly results, Google investors were waking up to the news that the search giant could be facing competition down the road from a potentially new and formidable foe. That's because

Microsoft

(MSFT) - Get Report

has offered to take over

Yahoo!

(YHOO)

for more than $44 billion in what could be a

game-changing merger for the Internet space if the sides can agree on a pact.

For his part, Schmidt said Google was "very hopeful" that European regulators would clear the acquisition of ad serving company

DoubleClick

. The deal was OK'd by the Federal Trade Commission in December but needs approval in Europe before it can close.

"The display business is right in front of us, and the DoubleClick deal is a crucial part of that strategy," Schmidt said. "The display marketplace can benefit tremendously from the technologies that Google is bringing to market."

Schmidt said Google's YouTube video-sharing service "is doing extremely well and continues to grow very quickly." The company also announced that marquee advertisers like

General Motors

(GM) - Get Report

and its Chevrolet division, among others, were testing the video ads that the service launched in 2007.

Schmidt also maintained his bullish forecasts for mobile search over the long haul. "In the long term -- 10 or 20 years -- a majority of searches could be done on mobile devices," he said. The computing power on mobile devices was rapidly increasing and would over time rival that available today on personal computers, he said.