Google profit up 19% but revenue rose only 3% amid slowing ad sales
SAN FRANCISCO -- Google's GOOG Internet ad sales grew at its slowest rate ever during the spring, forcing the online search leader to tighten its belt another notch to propel its second-quarter profit above analyst estimates.
The performance — punctuated by a revenue growth of just 3% — disappointed investors. The company's shares fell more than 3% in extended trading Thursday after the results were released.
Google is the most profitable company on the Internet, thanks to its dominance of the online advertising market. That means its lackluster revenue growth could foreshadow even more significant sluggishness among other Internet companies that rely on advertising and e-commerce. Many of those companies will detail what happened in their second quarters in the coming weeks.
Although the U.S. recession has been making it increasingly difficult for Google to sell ads, Chief Executive Eric Schmidt said he doesn't expect to see the climate to become any more challenging.
"We're not at the moment looking at that downward spiral that we thought we might see six months ago," Schmidt told analysts during a Thursday conference call. The remarks echoed comments made to reporters last week when he said the recession had already appeared to hit bottom.
The Mountain View-based company earned $1.48 billion, or $4.66 a share, during the three months ended in June. That compared with income of $1.25 billion, or $3.92 a share, for the same period last year.
Revenue rose $5.52 billion from $5.34 billion in last year's second quarter. It marked Google's lowest growth rate since the went public five years ago. It was also the second consecutive quarter of single-digit revenue growth for the company, which had never fallen below a 30% pace until late last year.
If not for stock compensation expenses, Google said it would have made $5.36 a share. That topped the average estimate of $5.09 a share among analysts polled by Thomson Reuters.
After subtracting ad commissions, Google's net revenue totaled $4.1 billion — about $40 million above analyst estimates.
Google relied on cost cutting and an unusually low tax rate to boost its profits amid the slowing ad sales. For instance, the company trimmed its general and administrative expenses by 23% to save about $110 million and reduced its spending on capital projects to $139 million, a decline of 80%, or $559 million.
The financial discipline resulted in the biggest quarterly reduction in Google's payroll since Larry Page and Sergey Brin started the company in a Silicon Valley garage nearly 11 years ago. Google ended June with 19,786 employees, 378 fewer than at the end of March.
Google's second-quarter tax rate was 20%, well below the more typical range of 25%.
The company's shares fell $14.99, or 3.4%, after finishing the regular session at $442.60, up $4.43. The stock has surged by about 50% since it last traded below $300 in early March, reflecting investors' faith in Google to weather the recession better than most companies.