Google trails profits expectations despite 24% rise in revenues

Published on Friday 16 July 2010 15:05

GOOGLE failed to impress with its second quarter earnings as the internet giant missed profit expectations for the first time in two years.

A 24 per cent rise in revenues, which reached $6.82 billion (4.4bn), was offset by rising costs and concerns about the impact of the European debt crisis. Its payroll is swelling at the fastest pace in four years as it has worked to expand into new products and markets.

Google employs about 21,800 people after boosting its headcount by nearly 1,200 during the three months to the end of June.

In addition to staff, it has also increased investment in research and development as it seeks to diversify from the search advertising revenue that accounts for the lion's share of its income.

Colin Gillis, an analyst with BGC Partners, said: "They're throwing more money into R&D than people were expecting and a little bit less into sales and marketing. Google has been pretty clear that it's going back into investment mode."

Investors are also worried the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts. That would damage Google, which reaps about one-third of its revenues from Europe.

In addition, customer payments made with the euro during the second quarter translated into fewer dollars than during the same period a year earlier. However, some analysts noted that weakening foreign currency did not hurt revenue growth as much as anticipated.

Second-quarter revenue would have been $176m higher if forex rates had remained constant from the first quarter. That figure represents 2.5 per cent of turnover posted for the period.

Patrick Pichette, Google's head of finance, said: "In our results and in our business we have seen no impact of the current turmoil in the economic environment."

Google is increasingly pitting itself against rivals beyond Yahoo and Microsoft as it ventures into smartphone operating systems, mobile advertising and other areas in search of future growth.

Executives highlighted a three-fold jump in searches made on mobile phones running Google's Android operating system as a sign of the platform's growing market traction.