Google misses profit forecast as costs surge

SAN FRANCISCO: Google Inc missed Wall Street’s quarterly profit estimates for the first time in two years after a spike in expenses offset a 24% revenue jump, but it vowed to keep investing in new businesses to drive long-term growth.

Shares of the Internet search engine leader fell almost 4% on worries about rising costs as it spent heavily on research and development (R&D) and hired aggressively to expand into new products and markets in hopes of maintaining the growth momentum Wall Street looks for.

Google eased worries that lingering economic uncertainty from the European debt crisis could take a toll on its business, and stressed that it planned to continue to aggressively invest in new growth opportunities.

A file picture shows a Google worker riding past the company’s headquarters in Mountain View, California. — AP

“They’re throwing more money into R&D than people were expecting and a little bit less into sales and marketing,” said BGC Partners analyst Colin Gillis.

“Google has been pretty clear that it’s going back into investment mode. They added 1,200 people in the quarter, which means more expenses are going to kick in in September.”

Google said the spending was concentrated on a handful of initiatives it believed could grow into billion-dollar businesses, providing diversification from the search advertising that now accounted for the lion’s share of revenue.

Finance chief Patrick Pichette cited Internet display advertising and the nascent smartphone advertising market as some of the key areas for investment, and defended the spending amid the economic uncertainty.
“It’s while everybody is cautious that you need to pounce,” Pichette said in an interview with Reuters on Thursday.

Pichette added that Google, which generated 52% of its second-quarter revenue outside the United States, had not suffered any ill effects amid investors fear that an economic slowdown could crimp advertising spending.

Thursday’s results were a rare outright earnings miss – Google’s first since the second quarter of 2008. The company posted net income of US$1.84bil, or $5.71 a share, in the second quarter – up from US$1.48bil, or US$4.66 a share, in the year-earlier period.

Excluding items, Google’s EPS was US$6.45, below the average estimate of US$6.52, according to Thomson Reuters. Net revenue, which excludes costs that Google shares with website partners, was US$5.09bil, above the US$4.98bil expected by analysts polled by Thomson Reuters. — Reuters