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.

AP

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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.

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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.