April 17 (Bloomberg) -- Google Inc., owner of the most popular search engine, faces a deteriorating market for consumer advertising after incurring a drop in business from financial firms.

The subprime mortgage meltdown that spurred the near- collapse of lender Countrywide Financial Corp. and investment bank Bear Stearns Cos. curbed Google's ad revenue growth in the past few months, Lehman Brothers Holdings Inc. analyst Douglas Anmuth said. The next decline may come from companies targeting U.S. consumers, whose confidence is at a 26-year low.

Google, whose shares plunged 36 percent in the first quarter, may report profit below analysts estimates for a second straight period today, said Dan Chung, chief executive officer of Fred Alger Management Inc.

``The quarter is going to be a close call and that in itself might be somewhat negative for the stock, given that Google has had a terrific multiyear run since its IPO,'' Chung said in an interview in New York with Bloomberg Radio. ``Investors are not used to the idea of Google missing numbers.''

Excluding some costs, profit probably rose to $4.46 a share, Lehman's Anmuth said, making him more pessimistic than analysts on average. They project $4.52, according to a Bloomberg survey of 25 analysts.

Evidence of Softness

First-quarter net income probably rose 27 percent to $1.27 billion, or $3.96 a share, less than half the growth rate of a year earlier, according to the analysts. Sales, excluding revenue passed on to partners, probably jumped 42 percent to $3.59 billion, they estimated.

``There is some pretty decent evidence of some softness,'' said New York-based Anmuth, who has cut his target price on the shares twice this year. He cited as one example online jeweler Blue Nile Inc.'s statement in February that fewer people were clicking on its ads.

Google spokesman Jon Murchinson said the company wouldn't discuss earnings until it reports results after the close of New York trading.

CEO Eric Schmidt said in March the company may weather slowing economic growth in the U.S. because of its operations abroad, where Google gets about half its sales. In January, after Google reported fourth-quarter profit and revenue that trailed analysts' estimates, Schmidt said, ``There is no evidence to date of an economic slowdown.''

Biggest Drop

Google's share-price drop in the first three months of the year was the worst quarterly performance since the company's initial public offering in 2004. Google rose $2.36 to $457.39 at 10:11 a.m. New York time on the Nasdaq Stock Market.

Clicks on Google's text ads, the four lines of ad copy that run next to search results and provide almost all of the company's revenue, rose 1.8 percent last quarter, said Reston, Virginia-based research firm ComScore Inc. That's down from 25 percent growth in the fourth quarter.

``Financial advertising has slowed,'' said Marianne Wolk, an analyst at New York-based Susquehanna Financial Group, who recommends buying Google shares.

Washington Mutual Inc., the biggest U.S. savings and loan, said this week it cut ad spending 16 percent in the past six months. Bear Stearns's ad spending fell 10 percent in the fourth quarter from the third. Mortgage lender Countrywide's fourth- quarter ad budget dropped 5 percent from the third quarter.

Consumer Concerns

Countrywide, in Calabasas, California, agreed to be bought by Bank of America Corp. in January after mortgage-related losses caused the stock to slump 85 percent in 12 months. In March, JPMorgan Chase & Co. agreed to buy New York-based Bear Stearns amid a run on the securities firm by clients and creditors.

Consumer ads may be the next to falter. RBC Capital Markets analyst Ross Sandler in New York reduced his 2008 and 2009 profit estimates for Google last month on concern that Americans' spending will slow.

Consumer sentiment in the U.S. fell to its lowest level since 1982 this month, according to a preliminary report from Reuters and the University of Michigan, as employers cut hundreds of thousands of jobs and oil prices climbed to a record.

Best Buy Co., the largest U.S. electronics retailer, said this month it will cut some mass-market promotions and instead target customers who join its member rewards program. Coldwater Creek Inc., the women's clothing retailer, said in March it plans to reduce ad spending by 70 percent. Blockbuster Inc., the movie- rental chain, lowered ad spending by 26 percent last quarter.

`Overblown' Fears

Reduced growth in paid clicks can be attributed to improved technology that eliminates irrelevant promotions, Nick Fox, a product manager at Google, said in a February interview. While the company is showing fewer ads alongside query results, consumers are more likely to click on those links, he said.

That's lifting the price per click as much as 30 percent, according to Colin Gillis, an analyst at Canaccord Adams in New York. He recommends buying the shares, as do 31 of 36 analysts surveyed by Bloomberg. The other five have hold recommendations.

``The alarmist sentiment was overblown,'' Sanford C. Bernstein & Co. analyst Jeffrey Lindsay said in an April 15 report. He also recommends the shares.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: April 17, 2008 10:16 EDT