Google Profit Beats Forecasts, but Sales Don't Impress

Googlequarterly profit beat Wall Street expectations, but its revenue growth was not as stellar as some investors had hoped, sending shares down 2 percent.

While Google's revenue growth of 3 percent was slightly above average analyst forecasts according to Reuters Estimates, expectations for a bigger beat had been built into the stock after Intel's strong report earlier this week.

"The whisper number for revenue growth was probably much higher and they came in a little lower," said JMP Securities analyst Sameet Sinha.

The Web search leader said on Thursday that revenue in the three months ended June 30 totaled $5.52 billion, compared with $5.37 billion a year earlier. Analysts were looking for $5.49 billion, according to Reuters Estimates.

Ross Sandler, analyst at RBC Capital Markets, also said Google's earnings per share were helped by a low tax rate.

Google Headquarters
Google Headquarters

Google earned $5.36 a share in its second quarter on sales of $4.07 billion, excluding traffic-acquisition costs. In the same period last year, Google earned $4.63 a share on sales of $3.9 billion in the same period last year.

Analysts who follow Google expected the company to turn in a gain of $5.09 on sales of $4.06 billion, according to a consensus from Thomson Reuters.

Google shares , which closed Thursday up 1 percent at $442.60, lost about 1 percent in after-hours trading. Get live, after-hour quotes for Google here.

The stock had risen about 9 percent in the past three months, compared with a 3 percent increase in the Dow Jones industrial average.

Analysts say Google's search-based advertising model is still the best in the business, but it has never been tested to this degree. It faces a slump in advertising spending due to the weak economy, and a resurgent rival in Microsoft, whose Bing search engine has won early favor.

"In my opinion, Google is gaining market share," said Sinha. "It definitely shows that Google is a best-of-breed company for online advertising, and it's a must buy."

Google Chief Executive Eric Schmidt said on a conference call on Thursday that business appears to have stabilized, but it was "too early to tell" when economic recovery will materialize—echoing his recent comments on the subject.

Google said the number of clicks on the ads that run alongside its search results, dubbed paid clicks, increased 15 percent year-over-year in the second quarter, a slight deceleration from the 17 percent clip in the first quarter.

The company also said that the cost per click decreased roughly 13 percent year-over-year, but increased 5 percent from the previous quarter.

The Mountain View, California, company did not provide a financial outlook, in keeping with its custom.