Google beats Street in second quarter

Search giant says strong advertising sales pushed earnings and revenue up from a year ago.

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.
Elinor Mills
3 min read
Google posted on Thursday second-quarter earnings that beat analyst expectations, as revenue from advertising continued to rise on market share increases.

Net earnings for the quarter were $772 million, or $2.49 per share, excluding one-time items such as stock-based compensation. Revenue was $1.68 billion, excluding traffic acquisition costs, which are commissions paid to content partners.

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Eric Schmidt says Google's focus on innovation is behind its strong sales during a normally weak quarter.

Analysts had expected Google to earn $2.22 per share on revenue of $1.65 billion, according to a survey by Thomson Financial.

Including items, the Mountain View, Calif.-based company earned $721 million, or $2.33 a share, for the quarter ended June 30. That's up more than double from $342.8 million, or $1.19 cents, a year earlier on the same basis.

Revenue including traffic acquisition costs was $2.46 billion, compared with $1.38 billion a year earlier.

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George Reyes says search giant benefited from traffic growth to its sites and continued strong ad sales.

On a conference call with analysts, company executives said they were pleased. "We're very, very happy with having such a strong quarter in a seasonally weak period," Chief Executive Eric Schmidt said. "When I look at why this is happening, I see the evolution of our strategy in front of us over and over again. We start with one thing. We learn. We iterate. And that's the hallmark of how Google operates."

Chief Financial Officer George Reyes said: "Growth in both traffic and monetization contributed to our performance this quarter," as well as continued growth in new advertiser customers.

Operating expenses, which totaled $652 million, were due to spending on hiring; acquiring and leasing facilities; sales and marketing; research and development; and advertising, Reyes said.

The company plans to do "aggressive hiring and strategic distribution deals" in the third quarter, and Google will look to build and buy rather than lease data centers and real estate going forward, he said. "Margins may decline as we continue to invest in the business," Reyes said.

The company ended the quarter with nearly $10 billion in cash. As a matter of policy, executives do not provide forward guidance.

Analysts were happy with Google's results. "Our first take is that Google's results were intrinsically strong, indicating a still robust search market, market share gains and solid execution," Citigroup analyst Mark Mahaney wrote in a research note.

The results "show a more mature company and yet one that is still growing," said Safa Rashtchy of Piper Jaffray. "I think it will provide some stability to the sector as a whole."

At the close of regular trading, Google shares were down nearly 3 percent to $387.12. The earnings report was issued after the close of regular trading.

Google is the top search site with nearly half of all Web searches in the U.S. in May, according to Nielsen/NetRatings.

On Tuesday, Yahoo posted second-quarter earnings that met analyst expectations and revenue that was shy of estimates. The stock fell after executives said the release of a new advertising platform was being delayed.