Investors punish Google for weak ad revenues

Google shares took a beating overnight, following fourth-quarter's earnings report. The information and search giant was down 7.7 percent in pre-market trading -- $49.25 to $590.32. Still, that's an improvement. Yesterday, Google closed at $639.57, and shares fell more than 10 percent during after-market trading. Google opened at $590.90 this morning and fell to $588.03 within the first 30 minutes of trading -- that's $51.54 off yesterday's close. By 10:17 am ET, Google shares closed on their pre-market decrease -- 7.78 percent, or down $49.77 per share.

Google's problem is one more of expectation than performance. Wall Street expected strong ad revenues for the holiday quarter, particularly with increase in online sales and therefore supporting search-related advertising. But ad prices fell instead, overshadowing other metrics. While paid clicks rose 34 percent, the amount paid for them fell by 8 percent, contributing to Google missing Wall Street consensus -- that despite solid revenue and earnings growth.

During fourth quarter, Google revenue rose 25 percent year over year, to $10.58 billion, while net income climbed 6 percent to $2.71 billion, or $8.22 share. Net revenue, meaning without network acquisition costs, was $8.13 billion and adjusted, non-GAAP earnings $9.50 a share. However, Wall Street expected more, with net revenue consensus $8.41 billion and non-GAAP earnings of $10.49 per share. Google delivered good growth, just not as much as analysts anticipated.

Fifty-three percent of Google revenue comes from international markets, where the debt crisis in Europe greatly contributed to ad rates -- that and search technology changes, which boosted clicks but not amount paid for them.

Fourth quarter was a rare miss for Google.