Google's Dirty Little Secret (GOOG)

Based on news from Reuters and a direct review of the 10-Q of Google, it would appear that the search giant is spending a lot of money it did not mention on its conference call or in its press release for the last quarter.

Google said that both its capital expenditures and cash-based cost for employees is growing faster than its revenue. To quote the 10-Q: "the annual rate of growth in 2006 of our spending on property and equipment will be substantially greater than the annual rate of growth of our revenues." And: "the annual rate of growth in 2006 of our spending on property and equipment will be substantially greater than the annual rate of growth of our revenues. " Finally: " our cash-based compensation per employee will likely increase."

The statements do not undermine Google's primacy as the world's great search engine, its reach in the internet ad world, the huge success of AdSense, or the growth rate of its revenue. The warning does, however, draw into question whether Google will be the profit engine and cash-flow machine that it has been the last two years.

And, that is bad for the stock price.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies that he writes about