Google Confirms Slowdown

Tax rates, rising expenses and currency issues aside, Google’s  disappointing results Tuesday night were important for another reason: they confirmed that the economy slowed dramatically in the fourth quarter.

Google was weighing down the tech sector Wednesday following a 14% tumble in late trading Tuesday after the search giant missed Wall Street earnings estimates by a wide margin. Google reported quarterly earnings of $1.54 a share, 22 cents below estimates.

Revenues after traffic acquisition costs soared 97% to $1.29 billion, but that was just below analysts’ forecasts.

When Intel  missed estimates last month, investors could point to the company’s market share loss to AMD , which posted blow-out results the next night.

When Yahoo missed estimates the same night as Intel, investors and analysts expected that the company was losing share to Google, and that Google would once again make a mockery of estimates. Google gained share in the quarter, but not nearly as much as expected.

The message in Google’s miss is that the slowdown is real — and that no company, regardless of how innovative, is above the waxing and waning of economic cycles.

It also means that the expected first-quarter rebound had better materialize.

Technology spending was one of the hardest-hit areas in the fourth-quarter
slowdown, when GDP skidded to 1.1% from 4.1% in the third quarter, according
to preliminary figures from the U.S. Commerce Department. Equipment and
software spending fell from a 10.6% growth rate in the third quarter to 3.5%
in the fourth.

But aside from the slowdown, Google’s earnings shocker also served as a
reality check for fans of the high-flyer. Wall Street price targets on the
stock have risen just as fast as the share price, and a big decline was
inevitable as soon as the first signs appeared that the company couldn’t
crush estimates forever. Even now, at 45 times this year’s estimates, the
stock trades significantly above its long-term expected growth rate of
30%.

In morning trading Wednesday, stocks came off their worst levels after an early decline on Google’s results. Blue chip stocks were up on strong results from Dow component Boeing , while the Nasdaq traded modestly lower. Shares of Google were lower by 8%.