Google’s Profit Soars in Quarter
Google Inc. on Thursday said second-quarter profit quadrupled as more people clicked on online ads, yet signs that the company’s astounding growth was tapering off sent its shares tumbling nearly 6%.
Google shares hit a new high of $313.94 before the earnings release, leaving the Internet search leader with a market valuation of $87.2 billion at the close of regular trading. But investors changed course after Google reported its results: Shares fell as much as 10% in after-hours trading before settling at $296.
“They didn’t beat [earnings-per-share] forecasts by enough to warrant the stock continuing its ascent,” said Scott Kessler, an Internet analyst with Standard & Poor’s.
Net income was $343 million, or $1.19 a share, compared with $79 million, or 30 cents, during the comparable period last year. Revenue doubled to $1.38 billion.
Excluding one-time items, such as stock-based compensation, the company earned $1.36 a share, Kessler said, beating the consensus of 28 analysts polled by Thomson First Call by 15 cents a share.
Still, Google failed to surpass Wall Street’s expectations by as much as it had in previous quarters, and profit margins shrank for the first time since the Mountain View, Calif.-based company’s initial public offering of stock in August, when shares debuted at $85.
“It was a 7 1/2 out of 10 -- not the 10 out of 10 we saw the last three quarters,” said Jordan Rohan, an Internet analyst with RBC Capital Markets.
Google executives have consistently declined to predict financial results, but they sounded a note of caution Thursday that slower growth was on tap for the third quarter, which began July 1.
Chief Financial Officer George Reyes reminded analysts that consumers usually spend less time at their computers -- and therefore click on fewer of Google’s text ads -- as the weather gets nicer and days grow longer.
Reyes also said Google would have a tough time improving upon the third quarter of last year, when changes to its advertising system and the publicity around the IPO led to 15% growth over the second quarter.
“I was worried that [analysts making their forecasts] would somehow say, ‘We’ll copy what happened a year ago,’ ” Chief Executive Eric Schmidt said in an interview after the earnings call. “I think that 15% growth is not consistent with the summer slowdown.”
Google continued to hire ferociously during the second quarter, increasing the number of full-time employees by 20% to 4,183. Schmidt said hiring was strongest in the European ad sales division and in engineering.
Google’s own websites, the most popular of which is its search engine, generated $737 million, a 115% increase from last year. Revenue from the ads Google brokers on the websites of partners such as Time Warner Inc.’s America Online rose 82% to $630 million.
Excluding commissions that Google paid to its partners, revenue was $890 million, beating analysts’ consensus prediction of $842 million.
U.S. computer users performed 6.09 billion searches on Google in the second quarter, up 6% from the first quarter, according to research firm Nielsen/NetRatings. By comparison, searches on Yahoo Inc.’s website rose 9% to 2.80 billion, searches on Microsoft Corp.’s MSN fell 4% to 1.59 billion and searches on AOL increased 15% to 646.6 million.
The text ads that appear with search results generate most of Google’s revenue. Analysts asked Google executives when some of the newer features, such as its online mapping and e-mail services, would begin to pay off.
Schmidt said Google valued increases in Web traffic much more than ad revenue in the first few years of new products. “They should become very, very large drivers of revenue for Google,” he said. “But they are not today.”
