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Google stock plunges almost 20% after earnings miss

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Mountain View (CA) - Google’s stock dropped more than $70 from $432 into $350’s territory, after the company had missed analyst’s expectations for the fourth quarter of 2005. The drop briefly eliminated more $20 billion of Google’s market capitalization of about $127 billion. The stock recovered slightly in the after hour session to settle around $375.

Google’s net income during the quarter was to $372.2 million, up from $204.1 million in Q4 2004. Strong advertising sales drove revenues up 86 percent to $1.92 billion. Earnings were significantly off estimates, mainly due an unexpected high tax rate which climbed from 31.6% in Q4 2004 to 41.8% in the most recent quarter. Google said that the proportion of total expenses allocated to its international operations was greater than anticipated and more of its profits were taxed at a higher domestic tax rate.

Google’s traffic acquisition costs (TAC) - one of the more often cited concerns in Google’s growth path - also increased significantly to $629 million, up from $530 million in the third quarter. However, the TAC portion of total advertising revenues declined from 34.0% to 33.2% in the same time frame, confirming the continued shift from Google network revenue to Google-owned site revenue.

For the year ended December 31, 2005, Google reported total revenues of $6.14 billion, an increase of 92.5% over revenues of $3.19 billion in 2004. Net income for 2005 increased to $1.47 billion, up from $399 million in 2004. Google’s warchest now holds more than $8 billion in cash and short term investments.

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