While Google Grows, Yahoo! Slows

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Mortality has proved costly for Yahoo! (Nasdaq: YHOO) as the company missed its fourth-quarter profit target by a mere penny per share. That was enough to send the shares plunging 13% last night. Being human, in this case, meant growing adjusted earnings per share by 23% for a $0.16 quarterly showing, when the market was holding out for a 31% growth spurt.

However, for those used to rival Google's (Nasdaq: GOOG) fancier fiscal footwork or even Yahoo!'s headier growth in the past, the online portal's slower steps forward can be sobering.

Most companies would love to grow the top line by 39% and free cash flow by 31%, but this is Yahoo! we're talking about. The expectations run high, and the valuation multiples reflect that.

For the new year, Yahoo! is looking to produce between $1.4 billion and $1.6 billion in free cash flow. At the low end, it reflects growth of just 8% in 2006. Revenues are expected to grow at a healthier clip -- 24% to 31% higher after accounting for the money Yahoo! kicks back to its search partners -- but that's still off its historical spurts.

This comes at a time when Yahoo! had folks believing that it was ready to jump-start its winning ways. The company been growing its paying-subscriber relationships and recently launched a contextual marketing program similar to Google's wildly popular AdSense.

There was a time when smaller paid-search specialists such as Miva (Nasdaq: MIVA), LookSmart (Nasdaq: LOOK), and, to a lesser extent, InfoSpace (Nasdaq: INSP) had analysts scratching their heads as to how they could be doing so poorly in a field that Google and Yahoo! were thriving in.

This may come as a rude awakening to companies like Inside Value pick Microsoft (Nasdaq: MSFT) and InterActiveCorp (Nasdaq: IACI) that are looking to grow their paid-search presence by selling ads. Unless Yahoo! finds a way back, for now, Google sits alone.

For related Foolishness:

• Yahoo! Yeeowch: Fool by Numbers
• Yahoo! Lurches Across the Line: Fool by Numbers

Yahoo! Longtime Fool contributor Rick Munarriz is a frequent Yahoo! visitor. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.