Report Shows Decline In Google Paid-Search-Ad Clicks In U.S.; Economy Slowing Web Star?; Growth outside the U.S. and in other areas could offset this trend, some say

A new report presents new evidence that even Internet darling Google might be feeling the effects of a slowing economy.

The number of times U.S. Internet users clicked on Google search ads in February fell compared with January, says market tracker comScore. This isn't the first time the number of Google paid clicks in the U.S. fell month to month, but it appears to be the first time that has happened three months in a row.

Paid clicks on Google Web sites in the U.S. last month did rise 3.1% compared with February 2007, after they fell 0.3% in January vs. January 2007. But U.S. paid clicks on Google ads rose 24% in the fourth quarter vs. the year-earlier period, according to comScore.

The report hurt Google shares, which fell 3.1% to 444.08 on Thursday. With search ads, Google and its Web site partners are paid per click. The stock is down 41% since hitting a high of 747 on Nov. 7.

Yet, many analysts hesitate to put too much into the report.

ComScore numbers usually are accurate, but the picture they paint is only part of Google's story, says David Garrity, an analyst for Dinosaur Securities. "(The report) ignores the rest of the world," he said. "Parts of the global economy are growing faster than the U.S."

In the fourth quarter, Google reported $2.32 billion in revenue from outside the U.S. That was 48% of total revenue vs. 44% in the year-ago quarter.

Google should be OK and meet analyst expectations when it reports its first-quarter results in April, as long as the sputtering in clicks is relegated to the U.S., Citigroup analyst Mark Mahaney wrote in a note to clients on Thursday.

On the other hand, "if the comScore data is accurate and holds for Q1 and if it is representative of Google's global trends -- and not just U.S. -- then it could imply a risk to Q1 estimates," he wrote, emphasis his.

The comScore report offers little comfort to investors worried that the online ad market will suffer in the current economic downturn, Youssef Squali, an analyst for Jefferies & Co., said via e-mail.

"Street earnings estimates for '08 are likely to be lowered, which is not usually what is needed to get a stock going," he said.

Some changes made by Google itself could have hurt its paid click numbers. Google said in a recent regulatory filing that it's removing ads that generate low click-through rates and others that send users to low-quality Web sites.

But it's not just paid clicks that are down. The total number of U.S. search queries on Google fell to 5.8 million in February from 6.1 million in January, says comScore. That's a 5% drop, but comScore says total U.S. search queries fell 6%.

Yahoo and Microsoft saw search query declines of 7% and 8%, respectively, comScore says

Google's internal tweaks and the economic downturn have created a snowball effect to reduce the company's paid clicks, says Martin Pyykkonen, an analyst for Global Crown Capital.

"Its multiple culprits," he said.

In any case, Google remains the search kingpin. Its share of all U.S. searches rose to 59.2% in February from 58.5% in January, comScore says. Yahoo's share fell to 21.6% from 22.2%, while Microsoft's fell to 9.6% from 9.8%.

The company is poised to boost revenue by tapping into new markets, including mobile and online display ads, analyst Garrity notes.

"Google can be seen as having more significant growth opportunities in front of it than it had in the past," he said, "and the stock has a chance of recovering once things stabilize."