Google Q2 earnings continue to climb

Search giant makes US$925 million profit for the quarter

Google revenue continued to climb in the second quarter, with the company reporting US$3.87 billion, up 58 percent compared to the same quarter last year.

Net income for the quarter, which ended June 30, was US$925 million, down just slightly from US$1 billion in the first quarter. On a non-GAAP (generally accepted accounting principles) basis, net income for the quarter was US$1.12 billion, compared to US$1.16 billion in the first quarter.

Google-owned sites generated revenue of US$2.49 billion, or 64 percent of revenue for the quarter, an improvement of 74 percent over the same quarter last year.

Revenue outside of the U.S. was US$1.84 billion, or 48 percent of total revenue for the quarter. That's up from 42 percent in the second quarter 2006.

Google was pleased with its international expansion. "We continue to make significant international investments and we're seeing the benefits of this strategy," said George Reyes, chief financial officer, during a conference call to discuss the earnings. Europe drove international growth for the search giant, with Spain, Italy and France leading the charge and Germany and the U.K. also serving as significant revenue drivers, he said. The company continues to hire new workers in its international sites and expand product support in international markets.

Paid clicks grew by 47 percent compared to the second quarter of 2006. That includes clicks related to ads served on Google sites as well as the sites of AdSense customers.

Earnings per share was a bit lower than expected by analysts. Non-GAAP earnings per share for the second quarter was US$3.56, down from US$3.68 in the first quarter and a few cents shy of the US$3.59 expected by financial analysts polled by Thomson Financial.

Google's rift with eBay Inc. during the quarter didn't have a negative affect on earnings, executives said. In June, eBay pulled all of its ads from Google's AdSense network. The auction giant later returned to AdSense but at a significantly lower level. Even though eBay has been the largest advertiser on AdSense, there was no impact on Google from the change, said Eric Schmidt, chairman and CEO of Google. "EBay is a long term partner for Google and while it's true they adjusted their mix in our ad model, they continue to be a significant advertiser," he said. "We did not see an impact on Google from the changes they talk about that they made."

During the call with financial analysts, Schmidt touched on Google's interest in upcoming wireless spectrum auctions. Google wants to see consumers buy any mobile device and be able to connect to a wireless network and use the full capability of the Internet, he said. That's because he wants those users to become Google advertising customers. "There's a direct connection between the open interoperable network we're arguing for in the FCC filing and so forth and the usage of Google services," he said. Google filed a document with the Federal Communications Commission urging the agency to make changes to the rules for an upcoming spectrum auction in order to ensure that the resulting networks are open.

Google's earnings report comes against the backdrop of hints of a challenge to the company's proposed acquisition of DoubleClick. A U.S. House of Representatives subcommittee has opened an investigation into the proposed US$1 billion acquisition.

The executives did not discuss the proposed merger, but Schmidt did touch on legal woes for the company. The two most significant lawsuits Google faces at the moment include those related to its book search project and the suit filed by Viacom Inc. related to YouTube, the online video site that Google owns. Schmidt called the suits very important and said he wished they could be solved by technology or otherwise.

He also cautioned that governments around the world could potentially find some of Google's activities inappropriate and that could become the source of future legal troubles. For now, however, there are no such threats, he said.

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Nancy Gohring

IDG News Service

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