UPDATE 4-Google quarterly results fail to excite

* Q2 EPS ex-items $5.36 vs Wall St view $5.08

* Q2 revenue $5.52 bln vs Wall St view $5.49 bln

* Shares down 3 pct in after-hours trade (Adds analyst comment, CEO quote, tax rate, other details)

SAN FRANCISCO, July 16 (Reuters) - Google Inc's GOOG.O quarterly profit beat Wall Street expectations, but the weak economy and slump in advertising spending took a toll on revenue growth and the price of its search ads.

Shares of Google fell 3 percent after the results, which exceeded average forecasts but failed to live up to the heightened expectations of investors following Intel Corp's INTC.O strong earnings earlier this week. Google shares have risen 4 percent since Intel's report on Tuesday.

“They did decently, but obviously it’s not high enough for the Street,” said Laxmi Poruri, an analyst at Primary Global Research.

Google’s revenue in the second quarter rose 3 percent to $5.52 billion, compared with the average analyst forecast of $5.49 billion, according to Reuters Estimates.

Excluding traffic acquisition costs -- the portion of revenue that is shared with Google partners -- revenue was $4.07 billion.

“People were hoping they would see something around the $4.3 billion range,” said Brigantine Advisors analyst Colin Gillis. “Google is changing from a topline growth story to an earnings expansion story,” he said.

Excluding special items, Google earned $5.36 a share in the second quarter, ahead of the $5.08 per share expected by analysts, according to Reuters Estimates.

The company also benefited from a lower income tax rate of 20 percent, compared with the first quarter’s 25 percent.

“If you take a step back, the top line was a bit light of where the raised expectations were, but in line with the Street. Margins were in line. Performance in the U.S. was in line and international was where the upside came from,” said Ross Sandler, analyst at RBC Capital Markets.

Revenue from outside the United States accounted for 53 percent of total revenue.

The Mountain View, California, company said the cost per click -- amount of money advertisers pay for a click on an ad -- fell roughly 13 percent year-over-year, but increased 5 percent from the previous quarter.


Analysts say Google's search-based advertising model is still the best in the business, but it has never been tested to this degree. It faces a slump in advertising spending due to the weak economy, and a resurgent rival in Microsoft Inc MSFT.O, whose Bing search engine has won early favor.

Bing boosted Microsoft's share of the U.S. search market to 8.4 percent in June from 8.0 percent in May, according to comScore, but Google maintained its 65 percent share, while Yahoo Inc's YHOO.O fell 0.5 percent to 19.6 percent.

Google Chief Executive Eric Schmidt said on a conference call on Thursday that business appears to have stabilized. “A quarter ago we had no idea where the bottom was,” he said.

While Schmidt said it was still too early to tell when the economic recovery will materialize, he noted that business had picked up in the online shopping and travel categories that Google sells ads for.

And Google sales chief Nikesh Arora said large advertisers have “come back to the table.”

Google posted net income of $1.48 billion, or $4.66 a share, versus $1.25 billion, or $3.92 a share, a year ago.

As usual, the company did not provide a financial outlook.

Google said the number of clicks on the ads that run alongside its search results, dubbed paid clicks, increased 15 percent year-over-year in the second quarter, a slight deceleration from the 17 percent clip in the first quarter.

Shares of Google fell to $427.80 in after-hours trade on Thursday, from their Nasdaq close of $442.60. The stock had risen about 9 percent in the past three months, compared with a 3 percent increase in the Dow Jones industrial average.

“It doesn’t seem like things are turning around per se. But the revenue per click -- an indication of advertisers’ appetite for clicks and for advertising -- was up sequentially, so you can assume that in terms of ad budgets out there, we probably reached a bottom some time in the first quarter,” said Richard Fetyko, managing director of Merriman Curhan Ford.

“What we need now is rebound in consumer spending.” (Additional reporting by Anupreeta Das and Laura Isensee; Editing by Steve Orlofsky and Tiffany Wu)