Google's quarterly revenue was slightly shy of Wall Street targets, and the level of payments to sites that show Google ads were much higher than expected. -- PHOTO: AFP

The world's top Internet company said it expected to continue to make 'significant capital expenditures' after spending US$678 million (S$961 million) in the fourth quarter on data centres, servers and other equipment. Citigroup had warned that spending above US$600 million would be a negative sign.

Revenue was slightly shy of Wall Street targets, and the level of payments to sites that show Google ads, called traffic acquisition costs, also surprised some.

'The traffic acquisition costs came in much higher than expected and suggests that some of the big deals with their partners may have been renegotiated with higher terms for the partners,' said Mr Jordan Rohan, an analyst at RBC Capital.

The report comes as investors watch to see how a United States economic slowdown will hit Google, which generates nearly all of its revenue from advertising.

'There was a slight softness in revenue which perhaps portends softness going forward due to the ... US economy,' said Mr Clayton Moran of Stanford Group.

The results were disappointing given the Web search leader's track record of beating expectations, he added.

Fourth-quarter net income rose to US$1.21 billion, or US$3.79 per diluted share, from US$1.03 billion, or US$3.29 per diluted share, in the year-earlier quarter.

Excluding special items, earnings per share amounted to US$4.43, falling short of analysts' average forecast of US$4.47, according to Reuters Estimates.

Revenue rose 51 per cent to US$4.827 billion. Analysts, on average, had predicted revenue of US$4.83 billion, with estimates ranging from US$4.67 billion to US$5.10 billion.

Google shares traded at US$520.48 in extended trading, down from their Nasdaq close of US$564.30. -- REUTERS