Google Q2 profit up 35% but disappoints analysts

Google Q2 profit up 35% but disappoints analysts
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First Published: Fri, Jul 18 2008. 03 07 PM IST
Updated: Fri, Jul 18 2008. 03 07 PM IST
San Francisco: Google Inc.’s earnings growth bogged down more than investors anticipated during the second quarter, raising worries that the ailing US economy is starting to sap the Internet search leader.
Although Google’s management maintains the company will thrive even if the economy weakens further, the results released today have caused Google shares to plunge more than 7%.
Investors were largely reacting to indications that Google is fretting about the economic climate for the first time since it went public nearly four years ago.
The red flags included a dramatic slowdown in the company’s hiring pace and Google Chairman Eric Schmidt’s description of the economy as “challenging.” Google’s chief economist, Hal Varian, even participated in the company’s conference call for the first time to discuss business conditions.
Google earned $1.25 billion, or $3.92 per share, during the three months ended in June. That represented a 35% increase from net income of $925 million, or $2.93 per share, at the same time last year.
If not for costs incurred for employee stock compensation, Google said it would have earned $4.63 per share. That figure missed the average earnings estimate of $4.74 per share among analysts surveyed by Thomson Financial.
Results did not exceed analyst expectations
It marked just the fourth time that Google hasn’t exceeded analyst expectations in its 16 quarters as a public company. Investors expressed their dismay as Google shares plummeted $40.70, or 7.6%, in Thursday’s extended trading after closing at $533.44, down $2.16.
Google’s Q2 revenue fared slightly better than earnings, rising 39% to $5.37 billion from $3.87 billion at the same time last year. More than half the revenue, $2.8 billion came from international markets, helping to offset some of the economic weakness in the United States.
After subtracting commissions paid to its ad partners, Google’s revenue totaled $3.9 billion, about $30 million above the average analyst estimate. Google’s Q2 showing could foreshadow more difficulty for rival Yahoo Inc. when it releases its results for the same period next week.
Online ads had nothing to do with drop in earnings
A big part of Google’s earnings letdown had nothing to do with online ads. After paying $3.2 billion to buy ad service DoubleClick in March, Google had less cash in the bank and was receiving less income on its remaining money because of lower interest rates.
Those factors produced just $58 million in interest payments and other income in Q2, down from $137 million a year ago. Long known for its free spending ways, Google appears to be watching its budget more carefully too. The company added just 448 employees during the second quarter, the fewest hired since the fourth quarter of 2004 when ushered in 353 new workers.
Since 2004 Google has been hiring an average of nearly 1,200 workers per quarter to expand its payroll to 19,604 employees.
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First Published: Fri, Jul 18 2008. 03 07 PM IST
More Topics: US | Google | Q2 results | Yahoo | online ads |