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Google Inc. (GOOG) "may soon hit a speed bump:" The interest income it makes off its more than $10b in cash won't likely grow at the same rate as last year. In the first nine months of 2006 Google reported $290.3m in interest income, more than the level of 5x 2005 and 4x Q4-2005. This increase contributed $0.20 to Q3 earnings per share of $2.36. Without the increase in interest income, says data provider Thomson Financial, EPS growth would have been 63.8% and not 78.8%. Such y/y comparisons will be tough to match in the current quarter: In Q4-2005 interest income was already $68.3 million. In this Q4 interest income could be around $115 million, a y/y increase of about 68%, but, "a far cry Google Chart 18 12 06from the quadrupling just three months earlier." Interest growth this year was better than many expected, largely because of Google's second big stock offering in April, raising an additional $2.06b, and because the Fed kept raising short-term interest rates. But this means that interest income growth will fall again in Q2-2007. Barring another big stock offering quarterly interest income shouldn't go far from where it is now, meaning interest income growth will keep shrinking. A Google spokesman said the company doesn't give earnings guidance and wouldn't comment on future interest income, but said Google's "practice has been to utilize our cash for business opportunities, not to generate interest." But he noted that Google has asked regulators for permission to put its cash in higher-yielding investments, which would increase interest income.
• Sources: WSJ
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• Potentially impacted stocks and ETFs: Google Inc. (GOOG). Competitors: Yahoo! Inc. (YHOO). ETFs: Internet HOLDRS (HHH), First Trust DJ Internet Index ETF (FDN), First Trust IPOX-100 Index (FPX).

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Source: Google Q4 Earnings Will Take a Hit -- WSJ