Google Inc shares tumbled 4 percent on Friday as Wall Street ignored the Internet search giant's plans to split its stock and focused on a decline in advertising rates and other worrisome business trends.
Google's search advertising rates declined more sharply than expected during the first quarter and the company increased payouts to partners.
This deepened concerns about Google's growth prospects among investors already nervous about its planned $12.5 billion acquisition of smartphone maker Motorola Mobility Inc.
First-quarter profit beat Wall Street expectations, but analysts noted that Google was helped by a lower tax rate.
More than three times the average volume of Google shares traded hands on Friday, as Google's stock finished the regular session down 4 percent at $624.60.
Google's plans to split its stock and to create a special class of non-voting shares drew some criticism from corporate governance advocates. But given that the move merely perpetuated a two-tier system that has long given Google's founders majority control of the company, investors seemed to shrug off the news.
It's not inconsistent with how Google been run in the past, said ITG Investment Research analyst Steve Weinstein. You, as a public investor, are just along for the ride.
The world's top Web search engine attributed the 12 percent drop in its cost per click (CPC) for the first quarter to a shift to cheaper mobile advertising rates among other factors.
Google's explanation for the declining CPC on a conference call with analysts offered clarity, but may not convince bearish investors, BMO Capital Market analyst Daniel Salmon wrote in a research note.
Mobile is increasingly an area of concern. Google has roughly 90 percent share of mobile search, but this revenue must be shared with OEM handset manufacturers and carriers, said Benchmark analyst Clayton Moran.
The fall in ad rates follows an 8 percent decline in the fourth quarter of 2011.
Barclays analyst Anthony DiClemente, however, said he was less concerned by this decline than others as cost-per-clicks was only part of Google's revenue growth prospects.
(We) are of the belief that CPCs will improve over time as Google's core search business will monetize well on mobile devices, he said in a note.
Analysts also said the lack of visibility around Google's plans for the recently acquired Motorola Mobility Holdings may pressure shares in the near term.
These results bode well and keep us positive on Google long-term, all the while recognizing that the lack of clarity around MMI is likely to remain an overhang on the stock short-term, Jefferies & Co analysts, led by Youssef Squali, said in a note to clients.
Shares of the company fell to $623.54 in early morning trade on the Nasdaq. They were trading down 3 percent at $631 later in the morning.
The stock, which fell 9 percent after Google's fourth-quarter results on Jan 19, has risen 2 percent since then.
(Reporting by Alexei Oreskovic in San Francisco and Sayantani Ghosh in Bangalore)