Google Earnings Fall Short of Expectations

Google shares dropped sharply in extended trading Thursday after the company reported a profit that failed to match what Wall Street hoped was coming, after a spike in expenses offset a 24 percent revenue jump.

AP

The report marked a rare stumble for a company accustomed to shattering financial expectations.

Google, which is expanding into new products and markets in hopes of maintaining the growth momentum Wall Street also looks for, spent heavily on research and development and hired aggressively.

Some analysts said headwinds from weakening foreign currency did not hurt revenue growth as much as anticipated, as Google managed to surpass targets for net revenue.

"They're throwing more money into R&D than people were expecting and a little bit less into sales and marketing," said BGC Partners analyst Colin Gillis. "Google has been pretty clear that it's going back into investment mode. They added 1,200 people in the quarter, which means more expenses are going to kick in in September."

The Internet search and advertising giant said it earned $6.45 a share in the second quarter excluding one-time items, up from $5.36 a share last year.

Excluding traffic-acquisition costs (TAC), Google's revenue reached $5.1 billion in the most recent period, up from $4.073 billion last year.

A group of 36 equity analysts who follow Google expected on average for the company to report a profit of $6.51 a share and revenue, excluding TAC, of $4.985 billion.

Google shares dropped more than 4 percent in extended trading Thursday. Get after-hour quotes for Google here.

The stock finished Thursday's regular Nasdaq session

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[GOOG  Loading...      ()   ] up less than 1 percent at $494.02.

"It missed my non-GAAP estimates but revenues looked a little better than expected," Aaron Kessler, an analyst with Thinkequity, told Reuters. "Research and development looked pretty high and general and administrative expenses were higher than I was expecting. Operating expenses overq;Ihigher than we had estimated which dragged down the earnings per share."

Payroll Ballooning

Google has beaten Wall Street revenue expectations in five of the past seven quarters and exceeded profit estimates in each of the past seven.

Its shares sold off after its last two better-than-expected earnings reports when, analysts said, some investors' expectations of blow-out results were missed. Thursday's results were a rare outright earnings miss.

Google is increasingly pitting itself against rivals beyond its usual competitors Yahoo

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[YHOO  Loading...      ()   ] and Microsoft

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[MSFT  Loading...      ()   ], as it ventures into smartphone operating systems, mobile advertising and other areas in search of future growth.

Google, which has made a string of acquistions in recent months, added more than 1,100 employees to its payroll during the second quarter.

Google's net earnings came in at $1.84 billion, or $5.71 per share, in the three months ending in June. That was up 24 percent from the same time last year, but lower than the rate of growth in the first three months of the year.

Total revenue, including money that Google shares with Web site partners, was $6.82 billion in the quarter.

In an encouraging sign for the overall economy, marketers paid more for the online ads that generate virtually all of Google's income. People also clicked on the ads more frequently.

Those trends indicate more companies and shoppers are feeling a little better as they recover from the worst economic downturn in more than 70 years.

- AP contributed to this report.