Google gets a warning

NEW YORK — Google Inc. is willing to predict its tax rate, but it should make broader financial forecasts.

The issue arises after Google’s fourth quarter earnings, reported late Tuesday, missed Wall Street projections (apparently because of a higher-than-anticipated tax rate), sending Google’s high-flying stock into post-market spasms.

Traditional earnings guidance might not mesh with Google’s world view. It carries connotations of enabling short-termism among investors, an anathema in right-thinking investment circles.

Google’s lightning-rod “don’t be evil” slogan has set it up for a recent avalanche of criticism after it decided to introduce a service in China despite restrictions imposed by that government.

But when it comes to earnings guidance, many others besides Google view the practice as something close to evil.

Handled properly, however, earnings guidance provides investors and analysts with valuable information and an ability to adjust expectations if business conditions change.

A little guidance from Google before Tuesday’s fourth quarter earnings report could have avoided some of the volatility that struck the stock.

While the online search giant’s fourth quarter earnings were an impressive $372.2 million, up from $204.1 million a year earlier, the earnings-per-share figure was below Wall Street estimates after certain elements were factored out, The Wall Street Journal notes.

With a stock priced for perfection (and maybe more) any earnings miss, no matter the rationale, was going to mean a big stock price drop. That’s what happened to Google in after-hours Tuesday trading. At one point the price was down 16 percent.

Google’s fourth quarter tax rate was 41.8 percent, bringing the full year rate to 31.6 percent, above the previously announced expectation of 30 percent. Google Chief Financial Officer George Reyes said on Tuesday’s post-earnings conference call the company expects a 30 percent effective tax rate in 2006, “keeping in mind the complexity” of such projections.

But the company wouldn’t go further down the line of earnings guidance.

When Google filed to go public in 2004, its founders Larry Page and Sergey Brin wrote: “If opportunities arise that might cause us to sacrifice short-term results but are in the best long-term interest of our shareholders, we will take those opportunities. We will have the fortitude to do this. We would request that our shareholders take the long-term view.”

Noble sentiments. But providing earnings guidance along the way doesn’t conflict with those goals. Additional information might in fact make shareholders more inclined to take that much sought long-term view.