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Web search leader Google reported disappointing earnings yesterday, blaming a hiring spree and a jump in other operating expenses, sending its stock down 7 per cent.
Google failed to beat Wall Street expectations for only the second time in its 12 quarters as a publicly traded company.
Net
profit rose 28 per cent and Google gained market share against Yahoo! and other rivals in online advertising. The gains were partially offset by a rise in expenses for adding staff, something Google said would brace it for accelerating growth.
"The guys have been spending like drunken sailors," said Jeffrey Lindsay, analyst at Sanford C. Bernstein. "The story is they've blown it on expense. Operating expenses were much higher than everyone was expecting."
Google's workforce ballooned nearly 13 per cent between March and the end of June, growing to 13,786 full-time employees from 12,238 staff at the end of March.
Shares of Google fell to US$508.50 ($649.40) in after-hours trade, down from a close of US$548.59 in regular session trade on Nasdaq.
The stock, which was trading just off recent record levels heading into the report, had jumped 15 per cent since mid-May.
Google said second-quarter net income rose to US$925 million, or US$2.93 a diluted share, compared with the year-ago quarter's US$721.1 million, or US$2.33 a share. On a sequential basis, second quarter net income dropped from the US$1 billion reported in the first quarter of 2007.
Excluding one-time items and stock option expenses, Google posted a profit of US$1.12 billion or US$3.56 a share. That was 3c a share short of Wall Street targets.
Gross revenue rose 58 per cent to US$3.87 billion - matching Wall Street's consensus forecast. Revenue included US$1.15 billion in payments to affiliated websites who run Google web search advertising, known as traffic acquisition costs. International revenue rose to US$1.84 billion, or 48 per cent of revenue, up from 42 per cent of sales just a year ago.
Google, which leads the US web search business with more than a 50 per cent share of the market, is even more dominant internationally, with more than 70 per cent of the audience for web searches, says market researcher comScore.
Chief executive Eric Schmidt told investors its pace of growth appears to be accelerating, rather than slowing down as normally occurs with companies its size, thanks to what accountants often call "The Law of Large Numbers".
The company is estimated to have captured nearly one-third of the world's online advertising revenue.
Google is growing easily four times faster than rivals Yahoo! and Microsoft, and at least one-and-a-half times the rate of eBay.
- Reuters