Google shares lost 7 percent of their value Tuesday after CFO George Reyes warned the search giant was seeing slower growth from its search engine revenue and will need to turn to other sources to generate more growth, which he said was now “largely organic.”

shares lost 7 percent of their value Tuesday after CFO George Reyes warned the search giant was seeing slower growth from its search engine revenue and will need to turn to other sources to generate more growth, which he said was now “largely organic.”

Mr. Reyes told a Merrill Lynch Internet Advertising and Education Conference in New York City that the Mountain View, California-based company had already realized many of its search monetization gains.

However, he said new products would yield “meaningful” contributions and he still sees some opportunity in keyword ad pricing.

Mr. Reyes denied he was bearish and said he still saw much growth ahead. But the company’s stock price has been declining since it hit an all-time high of $475.11 on January 11, a few days before rival Yahoo posted earnings that disappointed some Wall Street analysts (see Tech Stocks Hit by Q4 Data). Investors started worrying then that Google may face slower growth.

Tech Stocks Hit by Q4 Data

Google shares took another hit after it reported its own earnings on February 1 (see Google Slips on Profit News). To be sure, the company has seen very fast revenue growth over the past year, and its shares have soared from the 52-week low of $172.57 last March. However, several analysts have expressed caution about the prospects for future growth.

Google Slips on Profit News

The company did not issue a press release or SEC filing regarding its growth outlook, but will hold an analyst meeting on Thursday. Google did mention slowing growth in a recent 10K filing, though, and the Merrill Lynch presentation was available as a webcast.

“Clearly our growth rates are slowing,” said Mr. Reyes, according to TheStreet.com. “You can see that each and every quarter. We are going to have to find new ways to monetize the business.”

TheStreet.com

Shares of Google closed down $27.76 at $362.62 after trading as low as $338.51 during the regular trading session. Some 39 million shares changed hands, about three times the average daily volume.

Stock Market Fallout

The drop sparked a fall in the broader U.S. stock market. The Nasdaq Composite index slid 23 points, or 1 percent, to 2,284 after the news on Google. Yahoo shares also took a hit, falling $0.94 to $31.80 in recent trading.

“The search monetization gains have been largely realized,” said Mr. Reyes, according to CNBC. “Growth is slowing and now largely organic. We are going to have to find other ways to boost revenue. New products will yield some meaningful contributions.

“In no way am I bearish at this point,” he added. “There is a lot of opportunity in local and mobile products and different offerings.”

He ascribed the slowdown in growth to “simply the law of large numbers.”

Google did some damage control late Tuesday and issued a statement clarifying the statements made by Mr. Reyes. The company pointed out that its revenue growth rates had declined over time, and would continue to do so, because it’s hard to sustain the same growth rate as revenue increases. The search giant reiterated that it would improve monetization efforts.

“We still see significant opportunities to improve monetization and intend to continue to focus our efforts in this area,” the company said in a statement.

Many analysts agreed, and issued upbeat research notes.

“The fact that Google’s ‘growth rates are slowing’ should be obvious given the rule of large numbers,” said Safa Rashtchy, an analyst with Piper Jaffray. “The CFO’s comments that they are going to have to find other ways to monetize the business should be taken more positively, as we believe that this indicates that Google will aggressively pursue other revenue streams.”