Google shares fall after slowing ad sales revealed

Google's internet ad sales grew at its slowest rate ever during the last three months, forcing the online search leader to tighten its belt another notch to propel its second-quarter profit above analyst estimates.

The performance - punctuated by a revenue growth of just 3 per cent - disappointed investors. The company's shares fell more than 3 per cent in extended trading on Thursday after the results were released.



Google is the most profitable company on the internet, thanks to its dominance of the online advertising market. That means its lacklustre revenue growth could foreshadow even more significant sluggishness among other internet companies that rely on advertising and e-commerce. Many of those companies will detail what happened in their second quarters in the coming weeks.



Although the US recession has been making it increasingly difficult for Google to sell ads, Chief Executive Eric Schmidt said he doesn't expect to see the climate to become any more challenging.

"We're not at the moment looking at that downward spiral that we thought we might see six months ago," Schmidt told analysts during a conference call. The remarks echoed comments made to reporters last week when he said the recession had already appeared to hit bottom.



The Mountain View-based company earned $1.48 billion (£907 million), or $4.66 per share, during the three months ended in June. That compared with income of $1.25 billion, or $3.92 per share, for the same period last year.



Revenue rose $5.52 billion (£3.3 billion) from $5.34 billion (£3.2 billion) in last year's second quarter. It marked Google's lowest growth rate since the went public five years ago. It was also the second consecutive quarter of single-digit revenue growth for the company, which had never fallen below a 30 per cent pace until late last year.



If not for stock compensation expenses, Google said it would have made $5.36 (£3.28) per share. That topped the average estimate of $5.09 (£3.12) per share among analysts polled by Thomson Reuters.



After subtracting ad commissions, Google's net revenue totaled $4.1 billion (2.5 billion) - about $40 million (£24.5 million) above analyst estimates.



Google relied on cost cutting and an unusually low tax rate to boost its profits amid the slowing ad sales. For instance, the company trimmed its general and administrative expenses by 23 per cent to save about $110 million and reduced its spending on capital projects to $139 million (£85 million), a decline of 80 per cent, or $559 million (£342 million).



The financial discipline resulted in the biggest quarterly reduction in Google's payroll since Larry Page and Sergey Brin started the company in a Silicon Valley garage nearly 11 years ago. Google ended June with 19,786 employees, 378 fewer than at the end of March.



Google's second-quarter tax rate was 20 per cent, well below the more typical range of 25 per cent.



The company's shares fell $13.99 (£8.5, or 3.2 per cent, after finishing the regular session at $442.60 (£271.42), up $4.43 (£2.71). The stock has surged by about 50 per cent since it last traded below $300 (£184) in early March, reflecting investors' faith in Google to weather the recession better than most companies.

Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Ashdown Group: Senior VMware Platform Engineer - VMware / SAN / Tier3 DC

    £45000 - £55000 per annum + benefits: Ashdown Group: Senior VMware Platform En...

    Ashdown Group: Automated Tester / Test Analyst - .Net / SQL - Cheshire

    £32000 per annum + pension, healthcare & 23 days holiday: Ashdown Group: A gro...

    Ashdown Group: Application Developer - C#.Net, ASP.Net - Cambridgeshire

    Negotiable: Ashdown Group: Software Application Developer (C# & ASP.Net, SQL S...

    Ashdown Group: Front-End Developer / Front-End Designer - City of London

    £27000 - £33000 per annum + Excellent benefits: Ashdown Group: Front-End Devel...

    Day In a Page

    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
    Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

    What is it like to live with Alzheimer's?

    Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
    The Internet of Things: Meet the British salesman who gave real-world items a virtual life

    Setting in motion the Internet of Things

    British salesman Kevin Ashton gave real-world items a virtual life
    Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

    Election 2015: A dead heat between Mr Bean and Dick Dastardly!

    Lord Ashcroft reveals latest polling – and which character voters associate with each leader
    Audiences queue up for 'true stories told live' as cult competition The Moth goes global

    Cult competition The Moth goes global

    The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
    Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

    Pakistani women come out fighting

    Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
    Leonora Carrington transcended her stolid background to become an avant garde star

    Surreal deal: Leonora Carrington

    The artist transcended her stolid background to become an avant garde star
    LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

    Education: LGBT History Month

    Pupils have been discussing topics from Sappho to same-sex marriage
    11 best gel eyeliners

    Go bold this season: 11 best gel eyeliners

    Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
    Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

    Cricket World Cup runs riot to make the event more hit than miss...

    The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
    Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

    Katarina Johnson-Thompson: Ready to jump at first major title

    After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot