Google's earnings growth bogged down more than investors anticipated during the second quarter, raising worries that the ailing U.S. economy is starting to...
SAN FRANCISCO — Google’s earnings growth bogged down more than investors anticipated during the second quarter, raising worries that the ailing U.S. economy is starting to sap the Internet search leader.
Although Google’s management maintains the company will thrive even if the economy weakens further, the results released Thursday caused Google shares to plunge more than 7 percent.
Investors were largely reacting to indications that Google is fretting about the economic climate for the first time since it went public nearly four years ago.
The red flags included a dramatic slowdown in the company’s hiring pace and Google Chairman Eric Schmidt’s description of the economy as “challenging.” Google’s chief economist, Hal Varian, even participated in the company’s conference call for the first time to discuss business conditions.
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“That was a tipoff,” said Cantor Fitzgerald analyst Derek Brown. “Economic sluggishness has entered the discussion at Google, more so than we have ever heard.”
Google earned $1.25 billion, or $3.92 per share, during the three months ended in June. That represented a 35 percent increase from net income of $925 million, or $2.93 per share, at the same time last year.
If not for costs incurred for employee stock compensation, Google said it would have earned $4.63 per share. That figure missed the average earnings estimate of $4.74 per share among analysts surveyed by Thomson Financial.
It marked just the fourth time that Google hasn’t exceeded analyst expectations in its 16 quarters as a public company.
Investors expressed their dismay as Google shares plummeted $40.70, or 7.6 percent, in after-hours trading Thursday.
Google’s second-quarter revenue fared slightly better than earnings, rising 39 percent to $5.37 billion.
More than half the revenue — $2.8 billion — came in international markets, helping to offset some of the economic weakness in the U.S. After subtracting commissions paid to its ad partners, Google’s revenue totaled $3.9 billion — about $30 million above the average analyst estimate.
Stanford Group analyst Clayton Moran interpreted the performance as “confirmation that there is a slowdown in Internet advertising that’s affecting Google.”
The trouble may stem more from reluctant consumers than advertisers. Google generally only gets paid for ads that are clicked on and that wasn’t happening as frequently in the second quarter.
“Consumers are being cautious in their online spending patterns, just as they are in their offline spending patterns,” Varian told analysts during Thursday’s conference call.
— The Associated Press