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Sat, Jul 18, 2009 - Page 10 News List

Google’s slowing ad sales trump record Q2 profit

CHALLENGES Although the company saw net income rise 19 percent, investors were spooked by its second quarter of single-digit revenue growth


Google Inc made more money than ever in the second quarter, even though revenue growth slowed to a historic low.

The latter part of that paradox bothered investors, causing Google shares to fall US$14.62, or 3.3 percent, to US$427.98 in extended trading on Thursday after second-quarter results were released.

The market’s negative reaction largely reflected the high expectations surrounding Google. Since falling below US$300 in early March, its stock price had surged by about 50 percent, reflecting Wall Street’s faith in the company’s ability to sell more online ads even as the US slogs through its worst recession since World War II.

For the most part, Mountain View-based Google has delivered. Its second-quarter profit rose 19 percent to US$1.48 billion, or US$4.66 per share — the highest net income for any three-month period since Google went public five years ago.

Google pulled it off largely by making the first major cuts to its payroll, getting rid of employee freebies like bottled water and dramatically reducing its spending on data centers and other long-term projects.

The frugality has helped Google overcome its decelerating revenue growth during the past year. The pace slackened again in the second quarter as revenue rose just 3 percent to US$5.52 billion.

It marked Google’s second straight quarter of single-digit revenue growth, an unsettling trend at a company that hadn’t fallen below a 30 percent gain until the final three months of last year.

“They are pulling more levers than they have had to in the past and that’s a sign of a mature company,” Brigantine Advisors analyst Colin Gillis said. “People don’t like that because Google is supposed to be a growth company.”

Because it runs the Internet’s most widely used marketing channel, Google’s lackluster revenue growth could foreshadow even more significant sluggishness among less profitable companies fueled by online advertising and e-commerce. Many of those companies, including Yahoo Inc, will detail what happened in their second quarters in the coming weeks.

Although the US recession has been making it increasingly difficult for Google to sell ads, chief executive Eric Schmidt said he does not expect the business climate to become any more challenging.

“We’re not at the moment looking at that downward spiral that we thought we might see six months ago,” Schmidt told analysts during a Thursday conference call.

The remarks echoed comments made to reporters last week when he said the recession had already appeared to hit bottom.

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