Google Reports Profit

Google Reports Profit That Misses Analysts’ Estimates (Update1)

By Brian Womack

July 15 (Bloomberg) -- Google Inc., owner of the world’s most popular search engine, reported profit that missed analysts’ estimates as the company ramped up spending to take on social-networking sites such as Facebook Inc.

Excluding some items, profit was $6.45 a share in the second quarter, the company said today on in a statement. Analysts had estimated $6.52, according to a Bloomberg survey. Net income rose 24 percent to $1.84 billion, or $5.71 a share, from $1.49 billion, or $4.66, a year earlier.

Chief Executive Officer Eric Schmidt is hiring staff and has increased the pace of acquisitions to keep from losing business to Facebook, the world’s largest social-networking site, and Apple Inc., a competitor in mobile software and advertising. Google’s total expenses rose 22 percent to $4.46 billion in the second quarter.

“Google’s been pretty clear that, ‘Hey, we’re going to be putting in expenses,’” said Colin Gillis, an analyst at BGC Partners LP in New York who rates the shares “hold” and doesn’t own any. “They threw a lot of money into R&D and sales and marketing.”

Excluding revenue passed on to partner sites, sales were $5.09 billion, compared with an estimate of $4.98 billion in a Bloomberg survey of analysts.

Rising Dollar

Second-quarter estimates declined in recent weeks as the dollar strengthened against other currencies, including the euro, fueling concern that overseas revenue would be worth less when it’s brought back to the U.S. Analysts cut sales estimates by an average of $21.8 million in the past four weeks, according to Bloomberg data.

Google, based in Mountain View, California, rose $2.68 to $494.02 by 4 p.m. in Nasdaq Stock Market trading. The shares have fallen 20 percent this year.

The company’s cash and short-term investments were $30.1 billion during the second quarter. The company had $26.5 billion in the first quarter, up from $24.5 billion at the end of last year.

Google is using cash to invest in areas to help expand the company’s revenue in the future. Search-based online advertising spending is expected to rise 16 percent this year and 8.6 percent in 2011, according to EMarketer Inc. of New York.

“It’s reasonable to expect that they would be back in investment mode,” said Mark Mahaney, an analyst with Citigroup Investment Research in San Francisco, who doesn’t own the shares. “The question is how big is that investment mode.”

Acquisition Pace

Google is using its cash in part to expand through acquisitions. It has announced or completed more than a dozen purchases this year. In May, Google wrapped up its $750 million acquisition of AdMob Inc., a provider of display ads that go on mobile applications and websites, following approval by the U.S. Federal Trade Commission.

This year, AdMob and Google together may generate more than $100 million in U.S. mobile-ad sales, according to IDC in Framingham, Massachusetts.

Early this month, Google said it had agreed to buy flight- information provider ITA Software Inc. for $700 million. The deal gives it more of the online travel business and helps it compete with rivals Microsoft Corp. and Kayak.com.

Google operations in China, the world’s largest Internet market, have come under pressure amid the company’s tussle with the government over censorship rules.

“The timing of the Google-versus-China dispute suggests that the revenue likely took a significant haircut in the second quarter,” Jordan Rohan, an analyst with Stifel Nicolaus & Co. who rates the stock a buy, wrote in a note, adding that China likely only contributes $100 million to $150 million annually to Google.