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Google's Profit Falls Short, Shares Drop

Google Inc.'s second-quarter profit climbed 28 percent, but it wasn't enough to fulfill Wall Street's high expectations for the Internet's search leader.

Investors quickly expressed their dismay, causing Google shares to plunge by nearly 8 percent after the results were released Thursday.

The Mountain View-based company earned $925.1 million, or $2.93 per share, during the three months ended in June. That compared with net income of $721.1 million, or $2.33 per share, at the same time last year.

If not for costs associated with employee stock compensation, Google said it would have earned $3.56 per share. That figure missed the average analyst estimate of $3.59 per share among analysts polled by Thomson Financial.

Revenue for the period totaled $3.87 billion, a 58 percent increase from $2.46 billion at the same time last year.

After subtracting commissions paid to its advertising partners, Google's revenue was $2.72 billion -- about $40 million above analyst projections.

But the quarter's bottom line raised concerns that the rapid growth propelling Google's lofty stock price is slowing more dramatically than analysts thought.

The second quarter represented the first time that Google's year-over-year profit hasn't improved by at least 60 percent since the company went public in August 2004. What's more, it's just the second time Google's earnings have fallen below analyst estimates in its 12 quarters as a public company.

Google's track record had many investors taking another blowout quarter for granted. The anticipation lifted the company stock price by 10 percent since the end of May. Most of those recent gains evaporated Thursday as Google shares plummeted $43.10, or 7.9 percent, in extended trading. The stock ended Thursday's regular session at $548.59.

Despite the earnings letdown, Google Chairman Eric Schmidt told analysts in a conference call that he was pleased with the company's performance, particularly its revenue growth and increased traffic on its Web site.

Echoing a familiar theme, Schmidt said Google relinquished some of its profit to invest in more computing power and hire more employees. The company's capital expenditures totaled $575 million in the quarter, down 17 percent from the same time last year. Meanwhile, Google hired 1,548 additional employees during the quarter compared with the 1,152 workers it added last year.

Schmidt indicated Google may not hire as briskly in future quarters, saying the company intended to be more "careful" about adding employees. Google ended June with 13,786 employees, a 74 percent increase during the past year.

"When I look at the quarter, we are very pleased with what we delivered," Schmidt said.

Google fared far better than one of its biggest rivals, Yahoo Inc., which runs the second most popular search engine largest ad network behind Google. Yahoo's profit dipped 2 percent in the second quarter while revenue increased by 8 percent.