• by Wendy Davis , Staff Writer @wendyndavis, February 1, 2007

Google Wednesday posted fourth-quarter profits of more than $1 billion, leaving analysts cheering, even as Wall Street reacted with caution.

In fact, the stock dipped this morning, apparently due to concerns about Google's increased investments and higher payments to affiliates. Consider, Google reported that traffic acquisition costs to distribution partners -- the companies like MySpace that send Google search traffic -- increased to $60 million last quarter, up from $45 million in the third. Traffic acquisition costs to AdSense affiliates also were high -- $916 million, or about 76.5% of affiliate revenue.

But while Google's acquisition costs rose, Wall Street's concern seems somewhat puzzling: Google obviously benefited from the resulting increase in searches and revenue generated by clicks on paid links.

Of course, this isn't the first time Google stock has ebbed slightly after a generally positive earnings report. Last February, Wall Street also pulled back after Google posted a report showing that revenue and profits had nearly doubled year-over-year.

Still, it's likely a short-term blip, as Google continues to increase both its share of the search market and total revenue. This morning, Merrill Lynch again gave Google a "buy" rating. In a report by research analyst Justin Post, the brokerage house predicted that not even lower margins will keep the online ad powerhouse from continuing to post soaring profits.