MercuryNews.com
As the toll of the financial collapse mounts, add one more victim: Google's go-go growth.
On Thursday, the search giant announced second-quarter revenue was essentially flat compared with the first quarter.
Profit rose, but that's because the Mountain View company slashed spending on computer technology and the giant data centers that power its business. And the company continued shedding jobs, after years of adding hundreds or even thousands of new Googlers every quarter.Google's report adds to a mixed picture about the health of the technology industry. Earlier this week, Dell forecast that weak demand from big corporate customers would keep pressuring its profit, while Intel delivered a bullish report that led to a market rally Wednesday. And late Thursday, IBM delivered an especially upbeat assessment about the rest of the year.
CEO Eric Schmidt said Google's advertising business had stabilized. "We are not at the moment looking at the downward spiral we thought we might see six months ago," Schmidt told analysts in a conference call, noting that "a quarter ago, we had no idea where the bottom was."
But Schmidt could not identify signs of a recovery. The best news was that enough of Google's big advertisers have come back that the company was able to ring up $5.52 billion in revenue during the second quarter. That was $10 million better than the first quarter, when the company's revenue declined for the first time ever from the quarter before that and it looked like the economy was falling off a cliff. Advertisers, however, are spending less than they used to.
"For the first time, we saw a really big drop in revenue per search," said Jeffrey Lindsay of Bernstein Research. "We thought it wouldn't have deteriorated much for the first quarter, but obviously it has gotten worse." Revenue per search is a measure analysts watch. It goes down when advertisers pay less for ads or buy fewer ads.
The silver lining? The amount advertisers are willing to pay is "no longer declining now as a general rule across the board," said Jonathan Rosenberg, senior vice president for product management.
Google did manage to increase profit 18 percent as net income rose to $1.48 billion, or $4.66 a share, compared with $1.25 billion, or $3.92 a share, a year ago.
But that increase only came because of the cuts in hiring and technology spending, as well as an unusually low tax rate.
The number of employees at Google dropped by 378 to 19,786, marking a definitive end to a madcap hiring spree that characterized the company in the early years following its IPO.
Spending on capital projects plunged to $139 million. Two years ago, it was $575 million.
In an interview with the Mercury News, Chief Financial Officer Patrick Pichette praised employees for being frugal but said it would be wrong to assume that austerity had come to the Googleplex.
"We still have free food," he said. "We still have massages. There is still a doctor on site."
"It's mixed results," said Ron Gruia, an analyst with Frost & Sullivan who praised Google for its discipline. "It's the lowest growth rate since the company went public five years ago."
And if Google, one of the most profitable companies on the planet, is struggling, other smaller Internet companies are fighting for survival.
Schmidt and other executives described how Google has been pulling out the stops to turn YouTube into a profitable business and to begin selling meaningful amounts of display advertising — graphical ads that may soon increasingly replace the smaller, unobtrusive text ads that fueled Google's early growth.
"I think that is the next area where online advertising is going to shift and we are going to see tremendous growth," said Nikesh Arora, president of global sales. Arora said he was also pleased with the "trajectory of YouTube," which is selling more ads. "In the not long too distant future we see a profitable business," he said.
Google stock rose 1 percent to close at $442.60 in regular trading Thursday. But it fell as low as $427.67 in after-hours trading.
