Grimness Over Google Leads to Tech Bloodbath

Can you "bloodbath?"

Shares of Google fell nearly 7% Friday as one Wall Street investment house after another cut earnings projections after the search company's earnings fell shy of analysts' expectations.

As the downgrades flooded the wire, the news helped drag down the shares of most other big-name technology companies, exacerbating lingering fears about the strength of the economic recovery in the tech sector. Google finished the day down $34.41 at $459.61, just above its lows for the day. The sudden grimness over Google all but obliterated the optimism - bordering on cheer-leading - which prevailed earlier in the week after Intel posted a banner earnings report.

Sales actually came in slightly above analysts' forecasts. But that wasn't enough to reverse sentiment. The list of downgrades included the likes of Goldman Sachs, S&P Equity Research, Caris, CitiGroup, Stifel, Barclays, Kaufman Brothers and JP Morgan. Interestingly, they all retained positive views on Google, whose earnings for the quarter came in shy of analysts' expectations because of higher-than-expected expenses in the quarter.

But a big chunk of those expenses went into the sort of investment that the White House wants to see more of: new jobs. Google is growing its payroll at the fastest clip in the last four years. The company added nearly 1,200 employees in the second quarter to end June with more than 21,800 workers.

In another key figure watched closely by investors, the number of revenue-generating clicks on Google's ads in the second quarter increased 15 percent from the same time last year. The gain is in the same range as the increases in the past year.

The average price per ad click in the second quarter edged up 4 percent from last year, but it's slower than the growth seen during the previous two quarters. After clamping down on its costs most of last year, Google has been spending more freely because management believes the U.S. economy is steadily rebounding, with electronic commerce and the rest of the technology sector leading the charge.

Google has brought in nearly 2,000 employees during the first half of this year, through both recruitment and a flurry of mostly small acquisitions. The company's spending on data centers and other projects known as capital expenditures totaled $476 million, more than tripling from the same time last year.

For the quarter, Google, earned $1.84 billion, or $5.71 per share, in the April-June period, up 24 percent from $1.48 billion, or $4.66 per share, a year ago.

Contributions from the Associated Press.