Google Inc. fell to a nine-month low after an industry report showed fewer users are clicking on its Internet ads, raising concern that growth is slowing at the world's biggest search engine.
Clicks on Google's sponsored links -- text ads that run alongside search results -- fell 7.5 percent in January from a month earlier to 532 million, Reston, Va.-based ComScore Inc. said late Monday in a report. Sponsored search links accounted for most of Google's $16.6 billion in 2007 sales.
Google remains dependent on four-line text ads for profit growth, even as it expands into new areas through acquisition. A slump in that market and an economic slowdown may dampen prospects for the stock, said UBS AG analyst Ben Schachter, who cut his 2008 profit forecast for Google by 1.8 percent to $20 a share.
"While we remain fans of Google over the long term, we expect near-term expectations will be difficult to meet," wrote Schachter, who recommends buying the shares. "Though we hesitate to read too much into ComScore data in general and one month's release in particular, we are incrementally more cautious on our revenue growth estimates for Google sites."
Google fell $22.25, or 4.6 percent, to close at $464.19 -- the lowest since May -- then dropped to $463 in after hours-trading. The stock has tumbled 37 percent from its high of $741.79 on Nov. 6, wiping out about $17 billion in combined wealth for co-founders Larry Page and Sergey Brin.
Schachter, based in New York, cut his 2008 sales forecast for Google by 1.1 percent to $15.7 billion and lowered his share-price prediction by 9.2 percent to $590.
Advertisers are likely making fewer bids for Internet ad keywords, Schachter said in his report. These keywords allow them to serve up ads to users during search queries. There's also a chance the ad figures are incorrect, he said. Yahoo Incorporated's advertising numbers also fell.
Piper Jaffray & Co. analyst Gene Munster attributed the decline in advertising to a slowing U.S. economy.
"The weakness in paid clicks is in part caused by the macroeconomic slowdown, which negatively impacts consumers' online purchasing," wrote Munster, who recommends buying the shares. "We do not believe this is an indication that the broader search market is slowing."
Munster, based in Minneapolis, expects the shares to reach $806 within a year.