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Google earnings less astronomical than expected

CEO blames new employees

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How much does Wall Street expect from Google? Two days after Yahoo! announced a quarterly earnings drop, Google said its revenue was up 58 per cent, and financial analysts wanted to know what went wrong.

Thanks once again to strong search advertising sales, Google's revenue reached $3.87bn in the second quarter, up from $2.46bn in the same quarter last year, while net profits hit $925m, up from $721m. "We've delivered strong revenue performance, particularly on core Google.com search, and strong cash flow in our seasonally weak quarter," said CEO Eric Schmidt, during a conference all with analysts. "Traffic is stronger at Google.com, both domestically and internationally, with annual traffic growth actually increasing over time."

Revenue from Google.com alone hit $2.5bn, representing year-after-year growth of 74 per cent. Meanwhile, revenue from AdSense - the ad network that spans third-party web sites - grew 36 per cent from last year, to $1.35bn.

As Schmidt mentioned, the second quarter usually shows a drop off from the first - evidently, people have better things to do during the summer than search the web - but the drop wasn't quite as large this time around, and the company continues to rake in more dollars for each search. "The summer seasonality that we always talk about does appear to be milder than we expected," Schmidt said, "and we're improving our ability to monetize searches, as we do every quarter."

This so-called summer seasonality didn't affect the company's expanding international properties, with international revenues reaching $1.84bn. That's 48 per cent of total revenue, and a 46 per cent increase over the same quarter last year. It even tops first quarter performance - by 47 per cent. "Spain, Italy, and France in particular outperformed in Q2," said CFO George Reyes, "while Germany, along with the UK, were significant drivers of revenue growth." UK revenue was $600m, representing a four per cent increase.

But analysts have gotten used to Google exceeding earnings expectations, and with its latest earnings announcement, that just didn't happen.

Operating income dropped to $1.10bn, and when the company took questions at the end of its earnings call, the first analyst to jump in wanted to know why Schmidt hadn't reached his goal of growing operating profit every quarter. Schmidt indicated the drop was due in part to the company hiring more people during the quarter than it had anticipated, and it seems that it will keep a closer eye on hiring in the coming months.

Are you a new Google employee? You might be to blame for the 7.12 per cent drop in Google's stock price in after hours trading.®

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