Google earnings rise 36%, smashes expectations
San Francisco: Google Inc's 36 percent revenue surge smashed Wall Street's expectations and eclipsed concerns about mounting expenses, sending the Internet giant's shares up more than 12 percent.
Google's profit also topped forecasts in a quarter that showed the company is powering ahead in areas outside of its dominant Internet search business, including mobile and online video. The next challenge is whether it can duplicate that success in social networking.
Executives told analysts on a conference call the company had signed up more than 10 million people for Google+: the company's biggest foray into the hot social networking arena and the vanguard of its battle with Facebook and Twitter for websurfers' time and attention.
Over 135 million Android smartphones or tablets -- made by the likes of Motorola and Samsung Electronics -- had been activated in total. And its Chrome browser is now employed by more than 160 million users, CEO Larry Page said.
Shares of Google were up 12.3 percent at USD 594.50 in after-market trading, or just a whisker above levels at which the stock began 2011.
"Google should be viewed as a growth company again this quarter," said Stifel Nicolaus analyst Jordan Rohan. "The combination of mobile search, Android, ad exchange, YouTube, and the core search businesses, they're all doing well. Google is no longer a one trick pony."
"The number to focus on is really the GAAP earnings number. Google spent aggressively, hiring just as many people this quarter as the did last quarter."
Investors had feared Google's ever-increasing spending would eat into margins. Operating expenses leapt 49 percent to USD 2.97 billion in the second quarter, to about a third of revenue.
Analysts said the big increase in sales more than compensated for the rise in costs, but Google might find it increasingly difficult to shore up margins while it continues to hire, acquire and invest.
"Revenue growth overrides the hiring and the expense issues," BGC Partners analyst Colin Gillis said in response to the share price jump.
"Nice quarter from the guys, but you still have a situation of declining margins," he added.
However, Page said the company may now be "a little ahead of where we need to be with headcount growth." Google had 28,768 employees as of the end of June 30.
Net income in the second quarter climbed to USD 2.51 billion, or USD 7.68 a share, from USD 1.84 billion, or USD 5.71 a share, in the year-ago period.
Excluding certain items, it earned USD 8.74 a share, ahead of analysts' average expectations of USD 7.85 a share.
Net revenue, which excludes fees paid to partner websites, jumped 36 percent to USD 6.92 billion, ahead of the USD 6.55 billion expected by analysts polled by Thomson Reuters I/B/E/S.
Co-founder Page is expected to face questions on Thursday regarding its spending and margins, and will be under pressure to make a better impression than he did during last quarter's post-earnings briefing. On that call, the man who founded Google with Sergey Brin annoyed participants after he came on the conference call, said a few words, then abruptly left.
Before the earnings, some analysts had argued that the launch of Google+ may take some of the heat off the company for its spending and make Wall Street more comfortable with Page, who took the CEO reins in April.
"We're still in the very early stages of what we want to do," Page said. "Our emerging ... products can generate huge new businesses for Google in the long run, just like search. And we have tons of experience monetizing products over time."
Investors are hungry also for details about an investigation by the US Federal Trade Commission into Google's business practices as well as any commentary about how the European debt crisis is affecting its advertising business.