SAN FRANCISCO -(Dow Jones)- Google Inc.'s (GOOG) short-term outlook has grown increasingly murky in the wake of new data showing weakness in the Internet search and advertising giant's paid clicks, the source of almost all of the company's revenue.

The data from research group comScore Inc. (SCOR), released late Wednesday, marked the second consecutive month that its paid-click data disappointed Google analysts and investors, who responded by driving the Internet company's shares down as much as 3.9% Thursday.

But analysts were mixed about the reasons for, and the impact of, the disappointing data, with some suggesting economic weakness could cause Google to fall short of Wall Street's first-quarter estimates, and others arguing that efforts by the company to trim the number of clicks - which should enable it to increase the amount it charges per click - will boost the company's long-term prospects.

"Forecasting financial results in a recession is extremely difficult especially for an industry/company that has not experienced an economic downturn and for a company that provides zero guidance," Morgan Stanley analyst Mary Meeker said in a note.

With no guidance expected from the company, Google shares are seen remaining under pressure until April 17, when the Internet giant is expected to report its first-quarter results. Like many, Piper Jaffray analyst Gene Munster thinks Google might disappoint with its numbers, but that the stock reflects the pessimistic outlook.

"We think the bad news is already priced in," he said.

Google shares have fallen more than 40% since hitting an all-time high of $ 747.24 in November. The selloff has cut the company's market capitalization by more than $72 billion, and Google shares - which closed Thursday at $444.08 - are now trading near the company's cheapest valuation ever.

Google shares are trading at 24.5 times current year earnings, according to FactSet Research, near its recent low multiple of 23.9 and half its historical average of nearly 51 times earnings. In comparison, Yahoo Inc. (YHOO) trades at nearly 61 times earnings, inflated by Microsoft Corp.'s (MSFT) offer to buy, and Amazon.com Inc. (AMZN) is at about 43 times earnings.

Ebay Inc. (EBAY), at about 19.5 times earnings, is the only large Internet company below Google.

Google's selloff from its November high mirrors similar declines by other advertising-dependent companies. For example, newspaper operator Gannett Co. ( GCI) has lost 53% from May, television company CBS Corp. (CBS) is down 37% from its July top and media company Time Warner Inc. (TWX) is off 34% from June.

Google's stock losses, though, do outpace declines by other tech giants. Apple Inc. (AAPL) is down 31% from its December high, Cisco Systems Inc. (CSCO) is off 29% from its November top and Microsoft has lost 25%, also since November.

In general, though, analysts remain extremely bullish on Google shares, with a median price target of $630, according to Thomson Financial; 29 analysts rate the stock at buy or better, Thomson said, with only one sell.

"We continue to believe Google will outperform in the second half, following the recent close of the DoubleClick deal," Credit Suisse analyst Heath Terry said. "With a strong lead in both technology and innovation, we believe the company has significant opportunities to drive revenue growth in the local, mail, display, and video advertising markets despite the difficult economic environment."

Paid Click Debate

The latest source of angst over Google was the ComScore data showing that the number of U.S. Internet users clicking on the company's search ads in February fell 3% from the previous month, another indication that Google's core business has slowed dramatically.

Google has maintained that the deceleration in paid clicks reflects the company's efforts to improve the quality of its advertising leads. The company, for example, last year made it harder for consumers to accidentally click on ads, reducing the number of clicks.

Google Chief Executive Eric Schmidt said during the company's earnings call Jan. 31 that it hadn't seen any impact from macroeconomic softening. Google executives have also said they believe their search-advertising revenue will be more immune to troubles because the company provides advertisers with a measurable return on investment.

In addition, they have said it is impossible to extrapolate the health of its business from the click-volume data alone, given other factors such as what advertisers pay for each click.

That view was shared by several analysts Thursday, including Rob Sanderson of American Technology Research. Sanderson argued that the reduction in Google's paid click was largely the result of the company' own quality improvement campaign and the decline would be offset by higher prices per click.

He and other analysts also cautioned that comScore's data hadn't always shown a high correlation with Google's actual financial results.

Lack Of Clarity

Nonetheless, the various data points have stoked fears that a slowing economy could crimp even the fast-growing Internet advertising market. Furthermore, the company hasn't yet been able to demonstrate it can generate additional revenue from high-profile projects such as its YouTube video site, Google Maps and its push into mobile advertising.

Given Google's preference not to provide guidance, investors looking for more clarity will have to wait until the first-quarter report in April. A number of Wall Street analysts said Thursday that the latest comScore data make it likely that Google will fall short of consensus estimates for the quarter.

On average, analysts project first-quarter earnings rising 24% to $4.63 a share, with revenue increasing 43% to $3.66 billion.

"It's pretty confusing. Google is a hard company to bet against, but the reality is that (Q1) will probably be a miss, although not to the extent that comScore numbers suggest," Munster said.

Meeker said that, if the comScore data were to be accurate, Google's revenue could be 3% below consensus. Nonetheless, she remains bullish, keeping her overweight rating.

"We believe Google's business trends were solid in January, weaker in February (consistent with general business conditions), but strong in March, and the outlook for April is good based on online advertising spending data we have gathered," Meeker said.

-By Scott Morrison, Dow Jones Newswires; 415-765-6118; scott.morrison@ dowjones.com

  (END) Dow Jones Newswires
  03-27-08 1658ET
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