Google Shares Down
The Wall Street Journal — July 19, 2010
Google recently traded down $27.81 to $466.20.
The Internet company’s results benefited from improved demand in online-advertising, but some analysts were disappointed by the company’s operating expenses.
“Google reported another solid quarter, but bottom-line results were short of our and consensus estimates, largely as a result of higher than expected operating expenses,” Signal Hill analyst Todd Greenwald said in a note.
FBR Capital analyst Heath Terry wrote that Google remains “best positioned to benefit from the recovery in ad spending and overall growth in Internet usage,” while noting that “spending growth, regulatory scrutiny, and growing competition on multiple fronts remain risks.”
Google said its quarterly net income rose to $1.84 billion, or $5.71 a share, from $1.49 billion, or $4.66 a share in the same period last year. Excluding stock-compensation costs, profit grew to $6.45 a share from $5.36. Net revenue for the period ended in June was $5.09 billion.
Analysts polled by Thomson Reuters had expected Google to post earnings excluding items of $6.52 a share, and $4.99 billion in net revenue.
“It’s a mixed bag,” Kaufman Bros. Chief Executive Benny Lorenzo said of Google’s numbers. Lorenzo said that while earnings were “light,” Google met expectations for revenue growth.
The company offered a generally upbeat view of the market.
“For us at Google, it’s been a great quarter,” Google Chief Financial Officer Patrick Pichette said during a conference call with analysts. “We’ve seen no impact of what’s going on in the macro world,” he added, in reference to some recent signs of economic instability.
Google had been expected to report an upbeat quarter in light of a gradual recovery for online advertising.
The company said its paid clicks, or number of times that users click on its advertisements and generate revenue, rose 15% compared with the same period last year. That was flat compared with the paid-click increase enjoyed in the prior period, while analysts generally had expected a second-quarter increase in paid clicks of between roughly 15% and 17%.
The prices paid for clicks on Google’s advertisements, which are set according to an auction basis, rose 4% in the quarter compared with the period last year.
Google also said it added 1,184 employees during the second quarter, its most active hiring period since the first quarter of 2008.
Wall Street has been wary of increased spending on new hiring by the company, though Google has made clear that it sees investment in new talent as a priority.
Kaufman Bros.’ Lorenzo said that while Google had communicated its desire to hire aggressively, its second-quarter number of additions was “maybe more than people thought it would be.”
Overall, Lorenzo said, Google’s $1.99 billion in operating expenses during the quarter were roughly $100 million higher than he had anticipated.
Google CFO Pichette said the company’s performance of late has given it confidence to increase spending. It is “why we feel confident about investing now,” the CFO said.
Pichette suggested that the company may also see a “bump” in hiring in the current, third quarter, as recent university graduates who have accepted jobs at Google show up for work following summer vacations.
Google announced as part of its earnings release that it has established a $3 billion revolving credit facility, for general corporate purposes. Pichette said the debt financing is “a fantastic opportunity for us, given the portfolio we’ve put in place for our cash.” The company estimated that roughly half of its cash is held within the U.S., and is therefore readily accessible.
Pichette declined to comment on whether or not Google’s YouTube video service has become profitable yet.
Google said last year that YouTube was close to becoming profitable, and Pichette reiterated Thursday that the company is “incredibly pleased by its trajectory.”
YouTube is now seeing some 2 billion views per day, Pichette said.
