Google profit falls short of Wall Street view

By Eric Auchard

SAN FRANCISCO (Reuters) - Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) on Thursday reported a disappointing quarterly profit and aggressive spending plans to support a widening range of Web services, unnerving investors who sent its shares down 8 percent.

The world's top Internet company said it expected to continue to make "significant capital expenditures" after spending $678 million in the fourth quarter on data centers, computers and networks -- well above analysts' forecasts.

But Google executives said they were seeing no signs of deterioration of the U.S. economy in their own business and expect advertisers will maintain spending with Google even if they start to slash budgets.

"We have not seen any impact yet from the rumors of future recessions," Google Chief Executive Eric Schmidt told investors on a conference call, confronting fears that have clobbered Google shares and global stock markets in the past month.

Fourth-quarter revenue was slightly shy of Wall Street targets, however, and the rising level of payments to affiliated sites that show Google ads, called traffic acquisition costs, also surprised some.

"The traffic acquisition costs came in much higher than expected and suggests that some of the big deals with their partners may have been renegotiated with higher terms for the partners," said Jordan Rohan, an analyst at RBC Capital.

The results were disappointing given the Web search leader's track record of beating expectations, he added.

Fourth-quarter net income rose to $1.21 billion, or $3.79 per diluted share, from $1.03 billion, or $3.29 per diluted share, in the year-earlier quarter.