Google Quarter Earnings Disappoint

SAN FRANCISCO, July 15 (Reuters) – Google Inc (NASDAQ:GOOG) missed Wall Street’s quarterly profit estimates for the first time in two years after a spike in expenses offset a 24 percent revenue jump, but it vowed to keep investing in new businesses to drive long-term growth.

Shares of the Internet search engine leader fell almost 4 percent on worries about rising costs as it spent heavily on research and development and hired aggressively to expand into new products and markets in hopes of maintaining the growth momentum Wall Street looks for.

Google eased worries that lingering economic uncertainty from the European debt crisis could take a toll on its business, and stressed that it planned to continue to aggressively invest in new growth opportunities.

"They’re throwing more money into R&D than people were expecting and a little bit less into sales and marketing," said BGC Partners analyst Colin Gillis. "Google has been pretty clear that it’s going back into investment mode. They added 1,200 people in the quarter, which means more expenses are going to kick in in September."

Google said the spending was concentrated on a handful of initiatives it believes could grow into billion-dollar businesses, providing diversification from the search advertising that now accounts for the lion’s share of revenue.

Finance Chief Patrick Pichette cited Internet display advertising and the nascent smartphone advertising market as some of the key areas for investment, and defended the spending amid the economic uncertainty.

"It’s while everybody is cautious that you need to pounce," Pichette said in an interview with Reuters on Thursday.

Pichette added that Google, which generated 52 percent of its second-quarter revenue outside the United States, has not suffered any ill effects amid as investors fear that an economic slowdown could crimp advertising spending.

Some analysts said headwinds from weakening foreign currency — in particular the embattled euro — did not hurt revenue growth as much as anticipated. According to its statement, second-quarter revenue would have been $176 million if forex rates had remained constant from the first quarter.

"In our results and in our business we have seen no impact of the current turmoil of the economic environment," said Pichette.