The No. 1 Internet search engine underperformed on both revenue and earnings in the fourth quarter, disappointing investors who had counted on record U.S. online-commerce to prop up results.
Several analysts zeroed in on an 8 percent drop in cost-per-click, or money paid by marketers to the company for search ads, versus analyst estimates of a slight increase.
"The major question is: Is this a one-time thing or is this something that is going to continue because the nature of the business has changed," said Mayuresh Masurekar, an analyst at Colins Stewart.
Google executives reeled off a number of figures during the conference call that highlighted the company's progress in newer businesses such as display advertising, mobile and social networking.
But the good news did not offset concerns about Google's first year-on-year decline in its CPCs in more than two years, leading to nearly a half-dozen questions from analysts during the call and a terse one-liner from Chief Executive Larry Page who at one point requested that "maybe we can get our next question not about CPCs."
Google executives said the decline in search ad rates was primarily due to the impact of foreign currency exchange fluctuations and changes to the company's advertising formats.
The new ad formats drove a sharp increase in the total number of clicks by websurfers on Google's search ads - up 34 percent year-on-year - even though some of the format changes impacted prices negatively, Google executives explained.
But many analysts wondered whether Google's mobile advertising, which is generally believed to command lower ad rates, played a bigger part in the CPC decline than Google let on.
"This was the first time we've seen a decline in CPC rates since 2009," said Needham & Co analyst Kerry Rice. "It's been a long time and the one thing that's really changed about this is mobile."
Google's shares dived to about $583 in after-hours trade, from the Nasdaq close of $639.57 before the results.
Dave Rolfe, manager of RiverPark-Wedgewood Fund which counts Google as one of its largest holdings, said the stock decline was an "egregious overreaction" by Wall Street and that the declining ad rates did not shake his confidence in the company.
"The company tried to clarify it as best as they could, but it's Google and they're not going to give you every little nuance of it," he said.
"Google is famous for making improvements for their end-users that have short term negative results," he said.
Google is increasingly investing in mobile and social networking initiatives as it positions its business for new technology trends and squares off against rivals Apple and Facebook.
Google's business providing graphical display ads is generating revenue at a $5 billion annualized run rate, Page said during the call. That's up from the $2.5 billion run rate in October 2010, the last time Google provided a peek at the display business's financial performance.
Google+, the company's recently-launched social network, now has more than 90 million users, compared to 40 million users three months ago.
Perhaps more importantly, Google for the first time provided details about how often people actually use Google+.
According to the company, 60 percent of Google+ members use the service every day, and 80 percent use it every week.
That "engagement" on the social network, which Google hopes can eventually take on Facebook, is key to determining future revenue potential.
"Google+ investments are showing some results. They are investing in future revenue growth," said Global Equities Research analyst Trip Chowdhry.
Operating expenses increased to 32 percent of revenue during the fourth quarter, from 30 percent of revenue in the year-ago quarter.
Google said on Thursday it earned $2.71 billion, or $8.22 per share, in the fourth quarter, compared with $2.54 billion, or $7.81 per share, a year earlier.
Excluding certain items, Google earned $9.50 per share, lagging estimates for $10.49 a share.
Page, who took over as CEO in April, said the company was making tough choices about where to focus its efforts, pulling the plug on less successful products so that Google can "double down on the really big bets we have made."
Wall Street is still uneasy about one of Google's biggest bets: its planned $12.5 billion acquisition of smartphone maker Motorola Mobility Holdings. Investors are worried that Google is entering a lower-margin business in which it has no experience, and that the deal might alienate partners that license Google's Android mobile software.
In response to a question on the subject, Page said that he expected Google's relationships with its partners to remain strong once the deal closed, and reiterated that Motorola would be run as a separate company.
Google executives said more than 250 million devices powered by Android, Google's freely distributed smartphone operating system, had been activated since its inception.
"Android is quite simply mind boggling," said Page.
Google's net revenue, which excludes fees shared with partner websites, was $8.13 billion in the fourth quarter, versus $6.37 billion a year earlier. Analysts polled by Thomson Reuters I/B/E/S were looking for $8.4 billion.
That shortfall marks an unusual slip-up for a company that has exceeded Wall Street's revenue targets for eight consecutive quarters.