Jan. 20 (Bloomberg) -- Shares of Google Inc. had their biggest drop ever after the company was sued by the U.S. Justice Department to hand over information on Web searches and as concern mounted that sales growth may slow.

Google, which more than doubled last year, fell 8.5 percent as earnings shortfalls drove U.S. stocks to their largest decline in two years. The stock dropped 14 percent in the past three days and the company's market capitalization has tumbled $20 billion, more than the entire value of Amazon.com Inc.

Shares of Mountain View, California-based Google began the decline Jan. 18 after Yahoo! Inc.'s revenue gains from search missed analysts' estimates and two analysts recommended selling Google stock. The results from Yahoo, No. 2 in Internet search behind Google, sparked concerns that growth is slowing. A suit by the Justice Department yesterday added to concerns that some users may slow their online searching.

"People do not like seeing companies in which they're invested getting subpoenas from the Department of Justice," Standard & Poor's analyst Scott Kessler said in an interview. "What is more troubling is that Google chose to not comply."

Shares of Google dropped $36.99 to $399.46 in Nasdaq Stock Market composite trading, closing below $400 for the first time in two months. More than 40.7 million shares were traded, the most ever since Google went public in August 2004. Google led the Nasdaq Composite Index down 2.4 percent.

Google's market capitalization at $118 billion is now back below that of International Business Machines Corp. and Warren Buffett's Berkshire Hathaway Inc. Sunnyvale, California-based Yahoo, down 16 percent in three days, fell 59 cents to $33.74.

Subpoena

The conflict with the government brought to the surface long-rumbling concerns over consumer privacy and the Internet.

"This Department of Justice action is making people feel a little bit threatened," said John Battelle, author of "The Search," a book about the search industry. "Google has become a barometer about how people feel about the Internet."

In its suit, filed in federal court in San Jose, California, the government said it is seeking the data to help counter legal challenges to the Child Online Protection Act, designed to protect minors from viewing pornography.

The Department of Justice is seeking one week's worth of Web searches and 1 million addresses in Google's database.

While Google refused to hand over the information, other Web search companies, including Yahoo! Inc., Microsoft Corp. and America Online Inc., complied, at least in part, with similar Justice Department requests.

Anxiety

The case may stoke consumers' anxiety over divulging too much personal information to search engines, and could potentially hurt advertising sales, said Philip Remek, an analyst at Guzman & Co. in Miami who has rated Google shares "sell" since July.

"There may be a chilling effect on people doing searches if they're concerned that the government may go on a fishing expedition through the records," Remek said.

Google said in a statement yesterday that the government's demand for search information "overreaches."

The government will continue to press Google to turn over the records, Attorney General Alberto Gonzales said today. The request isn't an invasion of privacy and will help fight Internet pornography, he said.

Privacy

The attention on Google and privacy added to concerns about the health of the search industry, sparked by Yahoo reporting quarterly results on Jan. 17 that missed analysts' estimates.

The results are "an indication of change," Scott Devitt, an analyst at Stifel Nicolaus in Baltimore said after cutting his rating on Google to "sell" from "hold" the next day.

"We have seen a report recently from competitor Yahoo that was a big disappointment so people might think there could be the same result from Google," said Sasa Zorovic, Google analyst at Oppenheimer & Co.

Google now has three "sell" or equivalent ratings. Twenty- nine analysts have a "buy" rating on Google and 6 say "hold."

Today's fall may be an overreaction from Yahoo's results and the government's action, some investors and analysts said.

Google shares had jumped as much as 14 percent this year to a record $471.63 as analysts raised their share-price estimates on the stock to above $500. Caris & Co. analyst Mark Stahlman predicted Google would reach $2,000.

"Google is being taken down unfairly by the Yahoo news," said Jon Brorson, a managing director at Neuberger Berman in New York.

Google, which has "Don't be Evil" as its informal company motto, has long faced concerns from privacy advocates over services including GMail, which displays ads next to the content of users' e-mails.

"There's an ongoing issue related to privacy," said Allen Weiner, an analyst at Gartner Inc., a market research company in Stamford, Connecticut. Still, people are "still going to use their search engines because they remain relatively anonymous," he said.

To contact the reporter on this story:
Jonathan Thaw in San Francisco at  jthaw@bloomberg.net.

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