Google Inc missed Wall Street’s quarterly profit estimates for the first time in two years after a spike in expenses offset a 24 percent revenue jump, but it vowed to keep investing in new businesses to drive long-term growth.
The world’s No. 1 search engine posted net income of US$1.84 billion, or US$5.71 a share, in the second quarter — up from US$1.48 billion, or US$4.66 a share, in the year-earlier period.
Excluding items, Google’s EPS was US$6.45, below the average estimate of US$6.52, according to Thomson Reuters I/B/E/S.
Net revenue, which excludes costs that Google shares with Web site partners, was US$5.09 billion, above the US$4.98 billion expected by analysts.
Shares of the Internet search engine leader fell almost 4 percent on worries about rising costs as it spent heavily on research and development and hired aggressively to expand into new products and markets in hopes of maintaining the growth momentum Wall Street looks for.
Google said the spending was concentrated on a handful of initiatives it believes could grow into billion-dollar businesses, providing diversification from the search advertising that now accounts for the lion’s share of revenue.
Google finance chief Patrick Pichette cited internet display advertising and the nascent smartphone advertising market as some of the key areas for investment, and defended the spending amid the economic uncertainty.
“It’s while everybody is cautious that you need to pounce,” Pichette said in an interview on Thursday.
Pichette added that Google, which generated 52 percent of its second-quarter revenue outside the US, has not suffered any ill effects although investors feared that an economic slowdown could crimp advertising spending.
Some analysts said headwinds from weakening foreign currency — in particular the embattled euro — did not hurt revenue growth as much as anticipated.
“In our results and in our business we have seen no impact of the current turmoil of the economic environment,” Pichette said.
Google has made a number of major strategy shifts this year, including the decision to stop censoring search results in China.
This is a move analysts say has contributed to the more than 20 percent decline in Google’s stock this year.
While it announced last week that its license to operate a Web site in China was renewed for a year, Google did not address that during Thursday’s earnings call other than to say that revenue from the country in the second quarter was “decent” but remained immaterial to the company.
More immediately, Google is increasingly pitting itself against rivals beyond Yahoo Inc and Microsoft Corp, as it ventures into smartphone operating systems, mobile advertising and other areas in search of future growth.
To compete with the likes of Apple, Google made a string of acquisitions in recent months and added 1,184 employees to its payroll during the second quarter for a total of 21,805.
That spending spree contributed to a 22 percent year-on-year jump in operating expenses in the second quarter and took a toll on the bottom line, according to analysts.
“The question is going to be, how much money are they going to have to be putting in for new initiatives?” UBS analyst Brian Pitz asked.
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