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Wall Street pouts after Google earnings

Despite sales and earnings climb, the numbers fall short of analyst expectations. Stock pounded in after hours trading.

Elinor Mills Former Staff Writer
Elinor Mills covers Internet security and privacy. She joined CNET News in 2005 after working as a foreign correspondent for Reuters in Portugal and writing for The Industry Standard, the IDG News Service and the Associated Press.
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Elinor Mills
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Google's second-quarter revenue rose 58 percent from a year ago on continued strong search advertising sales, while profits rose 28 percent, slightly lower than analyst expectations.

Shares of Google fell about 7 percent to $507.60 in after-hours trading Thursday, likely because of its income results slightly missing analyst expectations. In regular trading, the stock closed at $548.59, down 91 cents.

Google's earnings, announced Thursday, are in sharp contrast to those reported by rival Yahoo two days ago. Yahoo saw earnings drop from a year ago on slowing growth in its display advertising business and warned that revenue for the remainder of the year would be lower than expected.

Google's net income for the quarter was $925 million, or $2.93 a share, up from $721 million, or $2.33 a share, a year earlier. Excluding one-time items such as employee stock-based compensation, income was $3.56 a share. Analysts polled by Thomson Financial were expecting income of $3.59 a share excluding items.

Total revenue reached a new high of $3.87 billion. That was up 58 percent compared with $2.46 billion for the same period a year ago. Excluding traffic acquisition costs, or commission paid to content partners, revenue was $2.72 billion, greater than the $2.68 billion analysts were expecting. Google paid $1.15 billion in traffic acquisition costs.

Most of Google's revenue comes from search advertising. The company is looking to expand more in display advertising with its proposed $3.1 billion acquisition of online ad company DoubleClick. That acquisition is being challenged on antitrust grounds by companies like Microsoft and AT&T. The Federal Trade Commission is investigating the proposed deal. In addition, consumer and privacy groups have complained that it would give Google access to too much consumer data and pose privacy concerns.

Google is also diversifying its advertising to the offline world. Its online automated system is being used to sell ad space in radio stations and newspapers around the country. The company expanded its Print Ads program for newspapers this week.

Yahoo underwent a management shakeup last month and promoted co-founder Jerry Yang to replace Terry Semel as chief executive. The company has been struggling to compete against Google.

Google has a 52.7 percent share of the search market in the U.S., compared with Yahoo's 20.2 percent and Microsoft's 13.3 percent, according to Nielsen/NetRatings. Research firm eMarketer predicts that Google's U.S. ad revenue will rise by 45 percent this year from a year ago while Yahoo's will fall by 18 percent. Google's stock, meanwhile, has risen about 40 percent over the past year.