Google says profit quadruples

SAN FRANCISCO - Web search leader Google today said quarterly profit more than quadrupled, fueled by growth in search advertising, but shares fell 5 per cent as revenue failed to match some high hopes and the company said summer doldrums were hitting business.

Chief Executive Eric Schmidt told Reuters the current quarter may not see the same 15 per cent sequential revenue gain Google posted last year, when results were boosted by a frenzy of media coverage leading up to its initial public offering.

"We really are affected by the summer slowdown," he said in a telephone interview with Reuters.

For the second quarter, Google posted net profit of US$342.8 million or US$1.19 a share, up from US$79.1 million, or 30 cents per share, a year ago and topping average Wall Street targets by 7 cents per share.

But that fell short of recent outsize gains by Google, which went public in August and beat analysts' consensus profit estimate by 65 per cent in the quarter ended in March.

Google shares dropped to US$297.25 after hours on Inet from a record close on Nasdaq of US$313.94.

Revenue, which comes almost exclusively from Web search advertising, was US$1.38 billion, nearly double the US$700.2 million in the year-ago period.

Analysts on average expected revenue of US$1.32 billion in the quarter for Google, the biggest player in the global internet advertising market, which has about US$8 billion in annual sales.

Marianne Wolk, internet analyst at Susquehanna Financial Group said there "was not as much upside as some had hoped."

Schmidt's comments that seasonality could affect Google also made some investors nervous, said Romeo Dator, fund manager at the All American Equity Fund, which owns Google stock.

On a sequential basis, revenue growth slowed to 10 per cent in the second quarter from 22 per cent in the first quarter.

Google rival Yahoo Inc. earlier this week posted a 40 per cent rise in revenue from a year earlier, but failed to meet Wall Street expectations, raising concerns about the growth of online advertising.

Google went public last August at US$85 a share and the stock had been on a steep and steady rise.

Google paid out US$494 million of quarterly revenue in fees, referred to as traffic acquisition costs, to sites that carry its ads. That was about the same percentage of revenue as in the prior quarter.

Mountain View, California-based Google has expanded its services beyond Web search to free email, Web logs, video search and comparison shopping, all of which carry the search advertising that makes up almost all company revenue.

Operating margin in the quarter was 34.4 per cent, down from 35.2 per cent the first quarter, Chief Financial Officer George Reyes said on a conference call with analysts. He added, as the company had cautioned before, that operating margins may decline as the company invests in its rapid expansion.

The second and third quarters are seasonally weaker for most internet companies, since the weather is warmer and people tend to spend more time outside and on vacation rather than indoors and online.

That is particularly true in Europe, a key international growth driver for Google, which got 39 per cent of its second-quarter revenue from overseas.

"We're more and more exposed," to seasonality, Schmidt said. "Now the effect of it is so much more visible in our revenue and profitability."

Google currently trades at a lofty 59 times its projected 2005 net earnings per share, while rival Yahoo trades at about 56 times its estimated 2005 net earnings per share.

- REUTERS