Google’s Stock Drops on Revenue Forecast

NEW YORK Shares in Google fell $4.96 or nearly 3 percent to close on the Nasdaq today at $167.54, following the company’s warning that its revenue growth rate would continue to decline.

“Although our revenue growth rate increased in the third quarter of 2004 compared to the second quarter of 2004, our revenue growth rate has generally declined, and we expect it will continue to do so as a result of increasing competition and the inevitable decline in growth rates as our revenues increase to higher levels,” the search behemoth said in a document filed with the Securities and Exchange Commission this morning.

From the second quarter to third quarter, revenue rose 15 percent from $700.2 million to $806 million. From Q1 to Q2, the company’s revenue increase totaled 7.5 percent, and from fourth-quarter 2003 to first-quarter 2004, it was 27.2 percent.

Google also cautioned that near-term advertising revenue could be negatively affected by steps taken to improve the relevance of ads displayed on its Web sites, such as removing ads that generate low click-through rates. The Mountain View, Calif.-based company derives nearly all of its revenue from advertising. (Businesses use Google’s AdWords program to promote their products and services through keyword ad buys, while the company’s publisher and search-site partners use AdSense to deliver relevant ads.)

Since its Aug. 18 initial offering of $85 a share, Google’s stock (GOOG) has ballooned, reaching a high of $201.60. Earlier this week, the share price dropped after selling restrictions were lifted on 39 million shares held by employees and early investors.