Google, Inc shares fell 7 percent on Thursday after Internet search leader reported profit and sales that came in below Wall Street expectations due in part to lower paid ad clicks, and struggles to monetize social networking ad inventories.

The Mountain View, California-based company announced that its fourth quarter earnings rose 17 percent while revenue increased by 51 percent.

We're very pleased with our performance this quarter, said Eric Schmidt, CEO of Google said in a statement. It reflects strong momentum in our core business, growing receptivity to our new business initiatives, and improved discipline in managing our operating expenses.

Paid ad clicks on Google's website and partner sites increased 30 percent in the quarter, compared to 45 percent growth a year ago.

We're optimistic about 2008. We have growing revenue streams across a broad range of verticals and markets, Schmidt told analysts during a conference call after the report was released.

Google, which struck a deal to place ads on the MySpace network last year says it has had trouble making money from social networking. Google must pay MySpace a minimum amount to advertise on the site.

We have found that social networks are not monetizing as well as we were expecting, George Reyes, chief financial officer of Google told analysts. Reyes said the slow growth had contributed to reduced profit margin for the quarter.

Schmidt denied that a slowing U.S. economy was behind the profit drop.

We have not seen any impact as of now, he told the New York Times.

Google said net income for the fourth quarter was $1.21 billion, or $3.79 a share, compared with $1.03 billion, or $3.29 per share a year ago. Excluding a one time stock-based compensation charge, it earned $4.43 per share, short of the $4.45 predicted by analysts.

Sales grew to $4.83 billion during the quarter, up from $3.21 billion a year ago. Revenue excluding advertiser commissions rose to $3.39 billion, from $2.23 billion. It was short of the $3.45 billion expected by analysts.

Shares of Google fell 6.54 percent, or $36.90 to $527.40 in after hours trading.

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