Google Shares Fall on Report of Fewer 'Paid Clicks'

Google shares fell as much as 8 percent on Tuesday after a U.S. industry report published this week showed a decline in a key measure for how Google gets paid by advertisers.

Paul Sakuma / AP

Wall Street analysts said the sell-off was accelerated by brokerage profit and price target downgrades after the report.

UBS analyst Benjamin Schachter cut his 12-month target on Google from $650 to $590 -- a new low among bullish Wall Street analysts -- and warned that international growth, including in Britain, Google's second-largest market, was a concern. BMO Capital also cut its stock price target to $590 from $690.

Shares of Google tumbled as low as $446.85, down $39.59 or 8.1 percent, in Nasdaq trading on Tuesday.

By midsession, the stock had recovered somewhat to $453.98. The stock is off nearly 35 percent so far this year, amid a sharp decline in technology stocks in the face of recessionary economic fears.

"Everybody owns it. When negative things start emerging and investors start trimming a bit, that creates a waterfall effect," said Jefferies & Co analyst Youssef Squali.

"The stock is a 'crowded long,'" said Squali, who cut his rating on Google to "hold" from "buy" a month ago, citing slowing growth trends. "Google is over-owned," he said.

Nonetheless, 29 brokers recommend investors continue to buy the stock, while only four rate it "hold." The mean price target remains $709.23, according to Reuters Estimates. BMO and Jefferies are two of the four who don't recommend buying the stock.

Internet audience research firm comScore issued a report on Monday showing a 7 percent decline in advertisements viewed on the site during January compared with the prior month of January, even as Web searches increased 10 percent in the same period, according to Squali.

Having cut his estimates and rating only a month ago, the Jefferies analyst said he would wait until later in the quarter to consider further downgrades to his forecasts.

"It is too early to lower our numbers again, but the incremental data is negative," Squali said, adding: "We are effectively recommending to shareholders: 'Stay away from the stock.'"

UBS trimmed its first-quarter earnings per share estimate to $4.66 from $4.76. The Wall Street consensus, excluding one-time items, now stands at $4.69 a share, according to Reuters Estimates. Forecasts range from $4.23 to $5.02.

The broker cut its 2008 EPS outlook by 1.8 percent to $20.00 from $20.37 and its 2009 prediction by 2 percent to $24.10.

Schachter maintained his long-term buy rating on Google.

The UBS analyst also noted that comScore had recently revised the way it measures visits to Web sites, which made comparisons to previous trends difficult.

Schachter said the data may reflect Google's ongoing efforts to pare charges to advertisers for inadvertent customer Web site clicks, faulty comScore data or a decline in online ad purchasing, or some combination of these three factors.

"While we remain fans of Google over the long term, we  expect near-term expectations will be difficult to meet," Schachter said.

© 2008 CNBC.com