Google's earnings lighter than expected

Revenue was up 24 percent for Google during its second quarter but the company missed analysts' expectations for earnings per share by 7 cents.

Google's revenue was still on the rise during its second quarter of 2010, but its earnings were a little lighter than expected.
Google's revenue was still on the rise during its second quarter of 2010, but its earnings were a little lighter than expected. Google

Updated throughout at 3:22 p.m. PDT following Google's earnings conference call.

Google's second-quarter revenue was up 24 percent compared to last year, but the company missed analysts' targets for earnings.

Excluding traffic-acquisition costs, Google took in $5.1 billion during the quarter, which ended June 30. That compares to around $4 billion during last year's second quarter, leaving out the money Google pays to its partners for traffic. Analysts polled by Yahoo Finance were expecting $4.99 billion in revenue for the quarter.

But reaction to earnings announcements tends to focus on the negative, and for Google, that focus will be on its earnings per share. Based on the GAAP accounting standards, net income for the quarter was $1.84 billion, up from $1.48 billion last year. Analysts evaluate company earnings by excluding certain expenses, like stock-option costs, and by those metrics Google's net income was $2.08 billion, up from $1.71 billion last year.

That translates to earnings per share of $6.45 when you exclude those special items, and the financial community was looking for $6.52. Google shares fell nearly 4 percent in after-hours trading.

The earnings miss overshadowed what in many ways was a solid quarter for Google. More people clicked on ads in the second quarter than they did last year, although paid clicks were down 3 percent compared to the first quarter of this year due to seasonal factors, said Patrick Pichette, Google's chief financial officer.

Revenue from ads on Google's own sites increased 23 percent compared to last year, and revenue from ads on sites that use Google's AdSense technology were also up 23 percent. That combination still accounts for the overwhelming share of Google's revenue, but it inched down slightly to 96 percent of its total revenue during the quarter, as Google slowly starts to earn revenue from non-advertising sources.

There are four key areas that Google is investing in at the moment, Pichette said. That includes search and search advertising, obviously, but mobile, Google Apps, and display ads are the other areas where Google is seeing the most growth and is therefore spending the most money, he said. The company hired 1,200 people during the quarter, and most of those were to work in those four key areas, he said.

One potential source of display-ad revenue--YouTube--is apparently still not profitable, or at least Pichette was uncomfortable commenting on whether it was profitable. Earlier this year CEO Eric Schmidt said he expected the video site to become profitable in 2010, so either Google isn't ready to announce that milestone, or it hasn't happened yet.

Pichette did confirm that Google spent $100 million successfully defending itself against a lawsuit filed by Viacom over YouTube and content available on the site. Appeals are still pending, but Pichette said advertisers are starting to see YouTube as an important part of their marketing budgets and are spending accordingly.

He also confirmed reports that Google has entered into a partnership with an advertising company called Omnicom that will generate ad spending over Google's DoubleClick Ad Exchange.

 

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