Google Inc.’s second-quarter profit quadrupled as the online search leader continued to exceed the great expectations underlying its soaring stock, but apparently it still wasn’t good enough for investors demanding even more outlandish growth.
The Mountain View-based company said Thursday that it earned $342.8 million, or $1.19 per share, for the three months ended in June. The results compared with net income of $79.1 million, or 30 cents per share, at the same time last year.
If not for a 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.
The company released its results after the stock market closed Thursday.
But then the shares dropped $17.95, or 5.7 percent, in extended trading as investors apparently fretted about a slowdown in the company’s growth.
The negative reaction didn’t surprise Piper Jaffray analyst Safa Rashtchy. “The stock had been going up too much in the last few days. It was becoming too much about a game of momentum. This quarter looked fine to me.”
Although Google’s earnings and revenue continue to rise at a rapid clip, some of the gains weren’t quite as large as in recent quarters — something that often happens as companies get bigger and the comparisons become tougher. For instance, in the first quarter, Google’s earnings surged to a more than sixfold improvement.
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.
Season shift
Industry analysts believe the season 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 the 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 be raising their third quarter estimates for Google, creating another drag on the stock, said American Technology Research analyst David Edwards.
Besides the caveat about the third quarter, Google management sounded mostly bullish about its prospects. “Business is going quite well, CEO Eric Schmidt said during a Thursday interview. “Things aren’t falling off a cliff.”
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.
Schmidt doesn’t believe a decline in Google’s stock would demoralize its workers. “I think it’s best not to talk or think about the stock,” he said. “Based on my experience, if we execute over the long term, the stock will go up and if we screw up, it will go down. You can’t worry about the short-term swings.”
Google’s biggest advantage remains the enduring popularity of its search engine, which continues to have a significant lead over its closest rival, Yahoo. That factor is crucial, because every search request submitted to Google or one of its business partners provides the company with another chance to present the ad links that generate revenue each time they are clicked upon.
Google processed 6.1 billion search requests in the United States during the second quarter, more than doubling the 2.8 billion requests processed by Yahoo, according to Nielsen/NetRatings.
