Google leak forecasts sharp decline in growth

Google, the internet search company, admitted on Tuesday that it made a slip-up during presentations at its analysts’ day last week, when notes included with slides mentioned a forecast of $9.5bn in advertising revenues this year.

Google, whose policy is not to provide forecasts on sales and profits, said in a Securities and Exchange Commission filing that the inadvertent leak should not be regarded as financial guidance. It said the statements were not notes for the analysts’ day but were prepared early in the fourth quarter for an internal product strategy presentation.

Nevertheless, the notes provide a fascinating glimpse for analysts into the future thinking that the unconventional company had avoided sharing with Wall Street. They also suggest that revenue growth will slow dramatically from 92 per cent in 2005 to 58 per cent this year.

This would not be unexpected – current analyst expectations are for sales in the range of $7.9bn-$11bn and George Reyes, chief financial officer, warned last week that Google was falling victim to the “law of large numbers” where big percentage rises became unsustainable as revenues grew.

The notes say advertising, 99 per cent of Google’s revenues, was projected to grow to $9.5bn “based purely on trends in traffic and monetisation growth. But strong competitors are attempting to aggregate traffic.”

“AdSense margins will be squeezed in 2006 and beyond,” the notes said, referring to the program that displays ads on third-party websites. But Google said in its filing that this statement did not reflect its current expectations.

However, Google shares dipped 2.8 percent to $354.23.2 per cent by early afternoon in New York on Wednesday.

The notes continued that Google was going to “execute well on our core ads project to help us exceed the $9.5bn target and backfill any AdSense partner loss.” They also detailed a stock-based compensation charge of $342m relating to awards made to employees prior to 2006 that would be included in this year’s numbers. Google said in its filing this was an accurate reflection of current expectations.

Google has disappointed the market this year with fourth-quarter results that fell short of expectations and comments from Mr Reyes last week, who suggested that growth was slowing.

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