Google exceeds Wall Street's forecast in Q2

Google topped financial analysts' revenue and pro-forma earnings expectations in its second quarter, which ended June 30, the company said Thursday.

Google had revenue of US$2.46 billion, a 77 percent increase over 2005's second quarter. Excluding the commissions it pays to third-party Web sites that belong to its advertising network, Google generated revenue of US$1.675 billion. The consensus estimate from analysts polled by Thomson First Call had been for revenue of US$1.646 billion.

Meanwhile, Google's net income came in at US$721.1 million, or US$2.33 per share, up from US$342.8 million, or US$1.19 per share. On a pro-forma basis excluding certain items, net income was US$772 million, or US$2.49 per share, higher than the analysts' US$2.22 per share consensus estimate.

Executives said they were extremely pleased with the results, particularly since the second quarter is traditionally slow for Google. Its business is almost entirely based on online advertising delivered to users of its search engine and of its partners' Web sites.

"We don't see any signs of approaching any limits to this vision. The opportunities before us really are unlimited at this point," Google Chief Executive Officer Eric Schmidt said during a conference call.

Google's earnings report contrasts significantly with the one from rival Yahoo, which disappointed analysts and investors on Tuesday and whose stock subsequently took a beating.

Among Google's areas of focus is the continued development of industry partnerships, such as the recent ones struck with Dell and Adobe Systems, in areas such as content, distribution and access, he said.

Also a priority for Google is growing its business internationally. "You'll see more and more international focus, growth and expansion," Schmidt said.

Chief Financial Officer George Reyes warned Google's margins may decline in the short term as the company increases its investments in the business. Capital expenditures reached US$699 million in the quarter, including US$319 million spent on real estate purchases. A significant amount also went toward IT infrastructure purchases, such as servers and networking equipment for data centers, Reyes said.

Capital expenditures will accelerate over the coming quarters, he said. "We can't put too much capex into the system. It's a really critical part of our competitive advantage," he said.

Google is also busy testing new advertising formats, to diversify from its almost complete reliance on search-based advertising, and to that end it is fine-tuning its graphical ad strategy, executives said. It also plans to dive into radio advertising in about three months through the integration of dMarc Broadcasting's technology into Google's advertising platform, Schmidt said.

On the headcount front, Google expanded its staff to almost 8,000 employees as of June 30, up from almost 7,000 on March 31, a pace that isn't expected to slow down, Reyes said. "We expect to continue hiring aggressively around the world, particularly in Q3, across all functions, especially sales, marketing and R&D [research and development]," Reyes said.

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