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Google Earnings Miss Expectations; Shares Drop

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Google's quarterly net income fell short of Wall Street expectations Thursday, suggesting it may be suffering from a weakening U.S. economy like its rivals, and its shares fell about 10 percent.

Net income for the second quarter rose 35 percent to $1.25 billion, or $3.92 per diluted share, from the year-earlier quarter's $925 million, or $2.93 per diluted share, when an unexpected jump in expenses hit results.

Excluding stock-based compensation costs, the company reported a profit of $4.63 per share—below the $4.72 average of Wall Street analyst forecasts.

Gross revenue rose 39 percent to $5.37 billion, matching the average forecast, according to analysts tracked by Reuters Estimates. Forecasts had ranged from $5.16 billion to $5.62 billion, representing growth of 33 percent to 45 percent.

Google shares fell about 10 percent after finishing regular Thursday trading hours 0.40 percent lower at $533.44. Google's stock price rose 20 percent during the most recent quarter, but is down for the year so far.

Despite the company's long-standing refusal to provide forecasts on its financial results, investors have come to count on Google to deliver positive revenue and earnings surprises over and above consensus expectations each quarter.

Since its initial public offering in August 2004, Google has regularly reported revenue surprises about 2 percentage points above the average analyst expectation, according to Reuters Estimates data.

Such outperformance powered the stock to lofty levels. But even merely meeting expectations is deemed by investors as a failing grade, leading to stock sell-offs.

For the quarter, Google's own sites accounted for 66 percent of revenue, similar to that of the March quarter and up slightly from 64 percent in the June quarter a year ago. Ads on Google partner sites produced 31 percent of revenue.

International revenue rose to 52 percent of revenue from 51 percent in the first quarter and 48 percent in the second quarter of last year.