Social network sites slow Google

Social network sites slow Google

Google yesterday blamed the difficulty of making money from placing adverts on social networking sites for holding back its growth in the latest quarter, contributing to a 9 per cent slump in its shares in after-market trading.

The search company also reported an unexpectedly sharp slowdown in the number of "clicks" people make on its online adverts, contributing to the nervousness on Wall Street about underlying demand for its core advertising services.

The latest share price decline left Google's shares down 25 per cent for the first month of the year and mirrored similar declines in other internet stocks in recent days as investors have grown concerned about the effects of growing competition and changing consumer behaviour on the internet.

"We have found that social networks are not monetising as well as we were expecting," said George Reyes, chief financial officer, as Google reported its earnings for the final quarter of last year.

Since Google has guaranteed to make minimum payments to a number of social networks that carry its advertising, principally MySpace, the slow growth of the business had left the company out of pocket and contributed to falling profit margins in the quarter, he added.

Sergey Brin, co-founder, said a number of initiatives in the final months of last year to boost social networking advertising had failed, but that he remained confident that Google would find ways to build a successful business around the growing traffic on these sites.

Other Google executives said that the difficulties arose from creating an appropriate "look and feel" for adverts, so that they matched the content on social networks.

At the same time, Google reported a 30 per cent increase in "paid clicks" in the final quarter of last year, a marked slowdown from the 45 per cent growth of a year before.

Google's revenues, excluding the traffic acquisition costs it pays to other websites that carry its adverts, rose by 52 per cent in the latest quarter to $3.39bn, slower than the 55 per cent growth analysts had expected. Net income rose 17 per cent to $1.2bn, or $3.79 a share, or $4.43 a share excluding stock option expenses, roughly in line with Wall Street estimates.

Source: http://www.ft.com/cms/s/0/9b6d342e-d068-11dc-9309-0000779fd2ac.html