Google profits lower than predicted

GOOGLE, owner of the world’s most popular search engine, has reported profits that missed some analysts’ estimates as the company ramped up spending.

Net income rose 24% to $1.84 billion (€1.42bn), or $5.71 a share, from $1.49bn, $4.66 a share, a year earlier, the company said yesterday.

Profit, excluding some items, was $6.45 a share during the quarter, Google said. Analysts had estimated $6.52, according to Bloomberg.

Google, grappling with competition from rivals Microsoft and Facebook, has increased spending to spur growth, raising concerns profitability may suffer.

The company, after reducing staff last year, has ramped up hiring and announced it would increase the pace of acquisitions.

“It’s reasonable to expect that they would be back in investment mode,” said Mark Mahaney, an analyst with Citigroup Investment Research in San Francisco. “The question is how big is that investment mode.”

Excluding revenue passed on to partner sites, sales were $5.09bn, compared with an estimate of $4.98bn in a Bloomberg survey.

Second-quarter estimates declined in recent weeks as the dollar strengthened against other currencies, fuelling concern that overseas revenue would be worth less when brought back to the US.

Analysts cut sales estimates by an average of $21.8m in the past four weeks.

In a positive sign for the overall economy, marketers were willing to pay more for the online ads that generate virtually all of Google’s income, and people are clicking on the commercial messages more frequently.

Those trends provide another indication that more companies and shoppers are feeling a little better as they recover from the worst economic downturn in more than 70 years.

Google rose $2.68 to $494.02 in Nasdaq Stock Market trading last night. The shares have fallen 20% this year.

The company’s cash and short-term investments were $30.1bn during the second quarter. The company had $26.5bn in the first quarter, up from $24.5bn at the end of last year.

Google is using cash to invest in areas to help expand the company’s revenue. Search-based online advertising spending is expected to rise 16% this year and 8.6% in 2011, according to eMarketer of New York.

On Wednesday, it was reported that Google’s share of the search market in the US dropped slightly in June, according to data from comScore.

Google sites had about 62.6% of the market, down 1.1% from May. Yahoo and Microsoft’s Bing both jumped 0.6%, to 18.9% and 12.7%, respectively.