Google Quarter Earnings Disappoint

By Reuters  |  Print this article Print

Google's quarter earnings missed expectations as the company saw an increase in expenses as it invested in Internet display advertising and smartphone advertising. Still Google posted a 24 percent revenue jump.

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Thursday's results were a rare outright earnings miss -- Google's first since the second quarter of 2008.

The world's No. 1 search engine posted net income of $1.84 billion, or $5.71 a share, in the second quarter -- up from $1.48 billion, or $4.66 a share, in the year-earlier period.

Excluding items, Google's EPS was $6.45, below the average estimate of $6.52, according to Thomson Reuters I/B/E/S.

The company has made a number of major strategy shifts this year, including the decision to stop censoring search results in China -- a move analysts say has contributed to the more than 20 percent decline in Google's stock this year.

While it announced last week that its license to operate a website in China was renewed for a year, Google did not address that during Thursday's earnings call other than to say that revenue from the country in the second quarter was "decent" but remained immaterial to the company.

More immediately, Google is increasingly pitting itself against rivals beyond Yahoo Inc (NASDAQ:YHOO) and Microsoft Corp (NASDAQ:MSFT), as it ventures into smartphone operating systems, mobile advertising and other areas in search of future growth.

Executives highlighted a three-fold jump in searches made on phones running Google's Android operating system as a sign of the platform's growing market traction.

To compete with the likes of Apple, Google made a string of acquisitions in recent months and added 1,184 employees to its payroll during the second quarter for a total of 21,805.

That spending spree contributed to a 22 percent year-on-year jump in operating expenses in the second quarter and took a toll on the bottom line, according to analysts.

"The question is going to be, how much money are they going to have to be putting in for new initiatives?" asked UBS analyst Brian Pitz.

Net revenue, which excludes costs that Google shares with website partners, was $5.09 billion, above the $4.98 billion expected by analysts polled by Thomson Reuters I/B/E/S.

Shares in Google fell to $474.50 after closing at $494.02 on Nasdaq.

Some analysts highlighted strong 24 percent growth in revenue as signs that Google was weathering well a difficult economic and advertising environment.

"I was pleased with the revenue coming ahead of expectations, driven by the strength in the U.S.," said Richard Fetyko of Merriman Curhan Ford. "Even with the forex headwinds from international, they came in $100 million ahead of expectations." (Additional reporting by Sue Zeidler, Gabriel Madway and Carolina Madrid; Editing by Edwin Chan, Gary Hill and Richard Chang)