SANTA CLARA, CALIF. — Investors searching for another reason to worry about the U.S. economy found it in Google.
Shares of Google Inc. on Tuesday slumped nearly 5% to their lowest point in almost a year on fears that even the mighty Internet giant is susceptible to the economic slowdown.
The combination of rising prices, slumping consumer confidence and slashed business spending have hurt much of corporate America. Yet Google for years remained largely immune to the economic crosscurrents. It grew to power during the last recession early this decade and continues to post huge profit.
But investors started souring on Google's prospects last month and have knocked one-third off its market value this year.
They're also quick to assume the worst in this skittish market. A research report suggesting that fewer people clicked on Google's search- engine ads in January was enough to trigger another sell-off Tuesday.
Google's shares dropped $22.25 to $464.19 -- 38% off their record high of $747.24 reached in November.
"No company is immune from the prospect of an economic slowdown," said Scott Kessler, Internet software and services analyst with Standard & Poor's.
Some analysts and marketing experts raced to Google's defense, arguing that the market reaction was overblown.
They said the monthly research reports, by Web-measurement firm ComScore Inc., hadn't usually proved to be good barometers of Google's financial results. They noted that Google could count on its international users to buffer a U.S. slowdown. And they contended that its status as the clear leader of a booming online advertising market left Google as the most likely Internet company to weather any drop-offs in consumer or business spending.
In fact, some said the economic woes could accelerate the shift of advertising dollars from traditional media because the Internet let marketers more easily track their campaigns.
"We're seeing a massive shift from traditional forms of advertising to digital," said Augustine Fou, global digital strategist for advertising agency MRM Worldwide. "No one else is better positioned to take advantage of the continued shift toward digital by more and more big advertisers" than Google.
Still, investors have soured on the prospects of Google maintaining its stunning rate of growth. At the age of 9, the Mountain View, Calif., company clearly is slowing down.
Last month the Internet giant reported a fourth-quarter profit of $1.2 billion, but the results fell short of Wall Street's expectations. Google said users clicked on fewer ads because it made some technical changes to reduce the number of accidental clicks.
During a conference call with analysts Jan. 31, Google Chief Executive Eric Schmidt said his company had not seen "a negative impact from the rumors of a future recession."
Questions about how Google would fare in a recession have dogged the stock since then. Analysts began sounding alarms Tuesday about the ComScore report. It said that Google users conducted 40% more searches in January than during the previous January, but they clicked on 7% fewer ads.
A slowdown could hurt, because advertisers pay Google only when someone clicks on those so-called sponsored links.
A Google spokesman declined to comment on the report.
Several analysts said it showed that investors were worried about Google's vulnerability to a recession but that Tuesday's sell-off went too far. ComScore Senior Vice President James Lamberti said the report wasn't meant to suggest that Google's profit would suffer.
Google has said it plans to tinker with its technology to display fewer, but more valuable, ads. Lamberti said the change would make the ads more relevant.
Hitwise, another Web-measurement company, said it saw evidence that Google was not being hurt by any slump in consumer confidence because it sent more Web searchers to e-commerce sites than in previous years.
MRM Worldwide's Fou said marketers needed to ignore the investor worries and keep making bets on Google and the search business.
"As recession fears kicked into high gear, even the best companies got taken down," Fou said. "I don't even raise an eyebrow at this kind of stuff anymore."
Some analysts are worried. Youssef Squali, with Jefferies & Co., said the number of clicks on paid advertisements, as compared with the previous year, kept declining through the fall: 37% in October, then 27% in November, then 12% in December.
After receiving the ComScore report, UBS Investment Research analyst Ben Schachter cut his stock price target for Google to $590 from $650.
"A reset of near-term investor expectations as well as continued bearish sentiment may mean the ride is bumpy over the next few months," he wrote in a research note.
Search ads are expected to generate about $10 billion of the $27.5 billion in U.S. online-advertising revenue this year, according to research firm EMarketer Inc., and the market is still growing far faster than traditional advertising.