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Google second quarter profit quadruples

Google's Second-Quarter Profit Quadruples

Google Inc.'s streak of stellar growth has spoiled investors so thoroughly that the online search engine leader may be punished because its second-quarter profit didn't surpass analyst expectations by a wide enough margin.

The Mountain View-based company set the stage for the harsh treatment Thursday with the release of a report that normally would be a cause for celebration. Google's earnings more than quadrupled during the three months ended in June, climbing to $342.8 million, or $1.19 per share, from $79.1 million, or 30 cents per share, at the same time last year.

If not for a slight charge to account for employee stock options issued before Google went public 11 months ago, the earnings would have ranged between $1.29 and $1.35 per share. That topped the mean estimate of $1.21 per share among analysts surveyed by Thomson Financial.

Revenue for the period totaled $1.38 billion, nearly doubling from $700.2 million last year. After subtracting the commissions that Google paid to other Web sites in its advertising network, the revenue stood at $890 million, beating the Wall Street estimate of $842 million, according to Thomson Financial.

Reflecting investor anticipation of a big quarter, Google's shares reached a new high of $317.80 on Nasdaq Stock Market Thursday before retreating slightly to finish at $313.94, up $1.94 for the day.

But then the shares dropped $17.95, or 5.7 percent, in extended trading. The negative reaction harkened back to a few years ago when companies routinely expected to deliver quarterly earnings aimed at a "whisper number" circulated among money managers and other elite investors. The whisper number invariably was above the estimates published by securities analysts.

Google's stock also had become overheated in anticipation of a blowout quarter, acording to many analysts. In an interview, Google's chief executive said he remained optimistic about the company's prospects. "Business is going quite well," CEO Eric Schmidt said. "Things aren't falling off a cliff."

In another development that may have troubled investors, Google's second-quarter revenue rose by 10 percent from the previous quarter. The sequential revenue growth had ranged between 15 percent and 28 percent in the previous three quarters that Google had reported as a publicly held company.

But the second quarter typically marks a financial slowdown for many Internet companies that rely on heavy traffic like Google, because more people are spending time away from their computers as the weather becomes warmer and the days grow longer. The same dynamic seemed to affect Google's second quarter results last year, when revenue increased just 7 percent from the preceding quarter.

Industry analysts believe the seasonal shift is one of the reasons that another Internet bellwether, Yahoo Inc., merely matched analysts' expectations in its second quarter, a performance that caused its stock to plummet earlier this week.

In a Thursday conference call with analysts, Google Chief Financial Officer George Reyes told analysts he expected it be even more difficult for the company to maintain its growth pace in the third quarter, and not just because people won't be in front of computers as much during the summer.

Google believes its results during last year's third quarter were boosted by the intense media coverage that surrounded its initial public offering of stock last August. The publicity drew more traffic to Google's Web site, helping the company make more money from the advertising links that it serves up with its search results.

That warning makes it unlikely analysts will raise their third quarter estimates for Google, creating another drag on the stock, Edwards said.

Estimates are that GOOG will move up to $350 a share in coming weeks.

Google is under immense pressure to produce extraordinary earnings growth because of how high its stock has climbed since the company's IPO at $85 per share. Although Google co-founders Larry Page and Sergey Brin have stressed they aren't interested in meeting short-term expectations, the company still has surpassed analysts' estimates in each quarter since the IPO.

The stellar showing has propelled Google's market value to nearly $90 billion in less than seven years in business, turning hundreds of the company's 4,183 employees into millionaires.

Remember this broker and investment community only one yer ago were negative and bullish on Google's stock. Is Wall Street finally beginning to realize that Keyword Search quite possibly saved the Internet ?