July 14, 2011 / 4:43 AM / 8 years ago

Google smashes Street expectations, shares surge

SAN FRANCISCO (Reuters) - Google Inc’s results soundly trounced Wall Street’s most bullish expectations, sending its shares up 12 percent and easing concerns that its battle with Facebook and Twitter is costing too much and hindering growth.

An employee answers phone calls at the switchboard of the Google office in Zurich August 18, 2009. REUTERS/Christian Hartmann (

The Internet giant’s flagship search advertising business, combined with new efforts like display and mobile advertising, boosted the company’s revenue by 36 percent in its first three months under the helm of new Chief Executive Larry Page.

The media-averse Page, who provoked grumbles by saying only a few words on the last quarterly earnings call, ticked off a string of fresh statistics on Thursday that underscored the company’s progress on various fronts, including the strong start for its 2-week old social networking service.

Page told analysts 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.

Google is fighting technology heavyweights that also include Apple Inc and Microsoft Corp, as well as upstarts such as Groupon, as it seeks to protect its lucrative search business at a time when mobile gadgets and social media are redefining the way consumers use the Web.

“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 $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 added about 2,450 new employees in the second quarter, bringing its total headcount to 28,768 employees as of the end of June 30.

He cited the company’s recent 10 percent across-the-board pay raise as having had a better-than-expected impact on employee retention.

Google has also been on an acquisition spree, buying six companies in the second quarter alone.

The expansion comes at time when Google is facing increasing regulatory scrutiny, with the U.S. Federal Trade Commission having launched an investigation into Google’s business practices. But analysts steered clear of the topic during the conference call, focusing instead on Google’s various business initiatives.

Net income in the second quarter climbed to $2.51 billion, or $7.68 a share, from $1.84 billion, or $5.71 a share, in the year-ago period.

Excluding certain items, it earned $8.74 a share, ahead of analysts’ average expectations of $7.85 a share.

Net revenue, which excludes fees paid to partner websites, jumped 36 percent to $6.92 billion, ahead of the $6.55 billion expected by analysts polled by Thomson Reuters I/B/E/S.

“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.”

Over 135 million Android smartphones or tablets — made by the likes of Motorola and Samsung Electronics — had been activated in total, Google executives said. And its Chrome browser is now employed by more than 160 million users.

Shares of Google were up 12.3 percent at $594.50 in after-market trading, or just a whisker above levels at which the stock began 2011.

Additional reporting by Mary Slosson in Los Angeles and Bill Rigby in Seattle; Writing by Edwin Chan; Editing by Richard Chang

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