Google Stumbles

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Google (Nasdaq: GOOG) missed!

Despite the blaring headlines, Google didn't technically "miss" with its fourth-quarter numbers. It might have missed analysts' expectations, but Google's policy is to not give guidance. That doesn't change the fact that it did disappoint Wall Street.

Granted, these aren't the torrid growth numbers investors are used to. For example, net income increased only 17% to $1.20 billion, or $3.79 per diluted share. Revenues increased 51% to $4.83 billion. Traffic acquisition costs, or the revenue that Google shares with its partners, increased to $1.44 billion, quite a jump from its TAC of $976 million this time last year. (For more numbers, check our financial snapshot of Google's fiscal year.)

There's still a lot to like about Google, not least of which is its large cash hoard of $14.2 billion. Google also generated $1.02 billion in free cash flow in Q4.

But what a difference from last quarter, when analysts were predicting an $800 Google. Remember? And in the quarter before that, Google disappointed the Street, so it's been a choppy year. Google bulls may be realizing that Google, like any other company, isn't bulletproof. 

Google management admitted it's having a harder time selling advertising on social-networking partners such as News Corp.'s (NYSE: NWS) MySpace, for one. Furthermore, there's advertising and the "r" word.

Last quarter, I was concerned that when (not "if") a recession occurred, it would do a number on advertising. And now here we are, with Google having admitted that advertising from travel and financial companies has slowed down. I'd say we can expect a greater slowdown in advertising to come.

And today's big news -- Microsoft's (Nasdaq: MSFT) dramatic bid for Yahoo! (Nasdaq: YHOO) -- is a blatant call to arms against Google.

So much for that $800 Google. I'd say the coming months (possibly years) will be rough, and really prove Google's competitive mettle -- after all, many of us have wondered about concerns like Google's reliance on advertising revenues and failure to get much traction for products other than search.

Then again, for those who have yearned for Google stock but feared its lofty price, and who still believe it has long-term competitive advantage, these conditions might bring about an unprecedented opportunity to get the stock at bargain prices.