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Google earnings miss Wall Street estimates

Shares of the search giant drop in after-hours trading after the company's fourth-quarter results miss analysts' forecasts, despite 51 percent rise in revenue.

This post was updated at 3 p.m. PST with comments from a conference call.

Google on Thursday said its fourth-quarter revenue rose more than 50 percent and profit rose 17 percent, but the figures were just short of Wall Street expectations. Shares were down more than 8 percent in after-hours trading as a result.

Meanwhile, executives said their business had not been affected by any slowdown in the U.S. economy, despite worries of spending cuts in online advertising during an economic downturn. In fact, Chief Executive Eric Schmidt told analysts in a conference call that he is optimistic about 2008 based on "ad dollars continuing to move from offline to online, a trend which of course is not going to reverse."

"We have not yet seen any negative impact from rumors of future recessions," he said. "We'll see what happens."

Net earnings for the fourth quarter were $1.21 billion, or $3.79 a share, including one-time items such as stock-based compensation, compared to $1 billion, or $3.29 a share, a year ago. Excluding those items, earnings were $1.41 billion, or $4.43 a share.

Total revenue rose 51 percent to $4.83 billion, compared to $3.2 billion a year ago. Excluding traffic acquisition costs, or commission paid to content partners, revenue was $3.39 billion, compared to $2.23 billion a year earlier. Such costs represent 30 percent of ad revenues. Google, as always, did not offer guidance.

Analysts polled by Thomson Financial were expecting Google to post fourth-quarter earnings per share of $4.44, excluding items, and revenue of $3.45 billion, excluding traffic acquisition costs.

Clicks on advertisements on Google and its partner Web sites rose about 30 percent from a year ago, which was a deceleration from previous quarters, executives said. Google also had trouble making money off ads on social networking sites, they added. Under its deal with MySpace, Google is committed to paying revenue even if consumers don't click on ads.

"We have found that social networking inventory is not monetizing as well as expected," said Chief Financial Officer George Reyes.

Meanwhile, Google is branching into other markets like mobile and hosted applications and beefing up ads on its YouTube video site to diversify from its reliance on search-based ads.

Google's shares, which have dropped about 18 percent so far this year, closed at $564.30. They reached an all-time high of $747.24 in November.

On Tuesday, Yahoo said it would lay off 1,000 workers, and it gave lukewarm guidance, despite posting earnings that beat Wall Street expectations.

Google has 56.3 percent market share for Web search in the United States, more than three times Yahoo's 17.7 percent and Microsoft's 13.8 percent, according to Nielsen Online. Meanwhile, Google also has unseated Yahoo as the top Web property worldwide, according to ComScore.

Spending on search advertising in the United States is expected to rise from $8.6 billion last year to $11 billion this year, according to eMarketer.