Google Misses Forecasts, and Street’s Not Happy
By Jefferson Graham
Internet search giant Google reported another strong quarter on Thursday. But that wasn’t good enough for Wall Street.
The company reported second-quarter revenue of $3.9 billion, up 58% from the year-ago quarter. Profit rose 28% to $925 million. After excluding items such as employee stock-based compensation, profit was $3.56 a share vs. the $3.59 analysts expected.
Investors punished the stock in late trading, sending shares down 7.3%, or $40.04, to $508.55.
“The stock price anticipates a great deal of growth in revenues and profits, and growth in the last quarter is a little slower than the previous two quarters,” says Andrew Frank, an analyst at research firm Gartner.
Why did investors get spooked? Google “spent too much in the quarter,” says Gene Munster, an analyst at Piper Jaffray. Google hired 300 more new staffers than analysts expected — a total of about 1,500 — and paid out a lot in bonuses.
“We’re very pleased with what we’re doing,” Google CEO Eric Schmidt told Wall Street analysts in a conference call after markets closed. “We had very strong performance this quarter.”
Profit was down from $1billion in the first quarter. Schmidt said the second and third quarters are seasonally slow for Internet advertising.
Google leads online advertising in its rivalry with Yahoo, which announced soft results Tuesday. Profit for Yahoo fell 2% in the quarter, and new CEO Jerry Yang spent much of his conference call with analysts saying Yahoo will be marching down a new path in the future.
Google holds a dominant 52.7% market share in search compared with 20.2% for Yahoo and 13.3% for Microsoft, says measurement firm Nielsen/NetRatings.
Despite the earnings “miss,” Munster says, investors have nothing to worry about. Spending on hiring and on bonuses “was the right thing for Google to do. Not for the short-term stock, but right for its future. They’re investing in the business.”
Google this week expanded a program to bring its advertising base to old media. Google customers can now order newspaper advertising directly from Google accounts, placing ads in papers including The New York Times and The Washington Post. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.