• NY Times, Wednesday, February 1, 2006 10:15 AM

Google learned the hard way yesterday afternoon that you'd better at least meet the Street when it comes to your earnings report. While revenue of $1.92 billion were in-line with Wall Street estimates, the company's actual earnings per share fell 20 cents short, sending its stock plummeting 12 percent, or more than $50 per share in after hours trading. This shows how the company's enormous valuation is predicated on assumptions that it will continue to grow very rapidly--in Internet advertising as well as other media services. However, 80 percent year-over-year growth just isn't good enough, compared to the third quarter's performance of 100 percent year-over-year growth. As The New York Times points out, this slowdown isn't the only evidence of holes in Google's impenetrable armor: the debut of the company's video store has been met with lukewarm reviews, and it recently turned down a federal subpoena and an invitation to meet with a Congressional committee on human rights, agreeing instead to aid the Chinese government in censoring its search results. As far as the numbers go, the Times says the shortfall is due to several "modest drags to its results," notably a strong dollar, which hurt its international business, a higher than expected tax rate, and an abrupt increase in capitol spending--particularly overseas. CEO Eric Schmidt said the gap between Wall Street's expectations and Google's reported earnings per share is almost entirely attributable to the increased tax rate. In shifting expense overseas, Google increased the portion of its taxable income in the U.S., which has higher rates. Schmidt projected the company's tax rate in 2006 would fall to 30 percent, from 32 percent last year.

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