Google Earnings Trend Becomes That of Disappointment (GOOG)

Google Inc. (NASDAQ: GOOG) has another round of earnings which are not going to be good enough for many.  The search behemoth posted earnings of $6.45 EPS on ex-TAC revenues of $5.09 billion.  Thomson Reuters has estimates of $6.52 EPS and $4.99 billion in ex-TAC revenues.  This will mark the second big move downward after earnings in a row, and it should be noted that the earnings estimate was $0.02 per share less at the earnings release than what Thomson Reuters listed a week ago.  We broke each unit of measurement out and comparative data on each.

Google-owned sites generated revenues of $4.50 billion, or 66% of total revenues.  While this represents a 23% increase over second quarter 2009 revenues of $3.65 billion, a quarter ago the Google-owned sites generated revenues of $4.44 billion, or 66% of total revenues and that was static from the quarter before.

Google’s partner sites generated revenues, through AdSense programs, of $2.06 billion, or 30% of total revenues.  This is compared to $2.04 billion, or 30% of total revenues, last quarter and compares to 31% two quarters ago.

International revenues were $3.53 billion, representing 52% of total revenues in the second quarter of 2010.  This is down from 53% a quarter earlier.

Traffic Acquisition Costs as a percentage of advertising revenues rose to $1.73 billion and was 26% of ad revenues.  It was 26% a quarter ago and 275 a year ago.

Paid clicks were down 3% sequentially after showing a 5% sequential a quarter ago, but this is still up 15% from a year before.

Operating expenses (other than cost of revenues) were $1.99 billion in the second quarter of 2010, or 29% of revenues,  up from 29% of revenues last quarter.

Stock-Based Compensation was $309 million versus $291 million last quarter and versus $276 million a quarter before.  Google is still sticking with 2010 guidance of $1.2 billion for stock based compensation.

Cash and equivalents came in at a whopping $30.1 billion, up from $26.5 billion last quarter and up from $24.5 billion just two quarters ago.  What is interesting is that Google noted that the cash increase included cash collateral of $2.9 billion that the company received in connection with its securities lending program, partially offset by $1.1 billion of tax payments and $704 million of shares repurchased related to the AdMob acquisition.  In addition, Google’s Board authorized debt financings of up to $3 billion through the issuance of commercial paper and it established a $3 billion revolving credit facility, which is to be used for general corporate purposes.

Google’s headcount was 21,805 full-time employees, up from 20,621 last quarter and up from 19,835 two quarters ago.

All in all, this is a report of a maturing company that still is growing and still has growth ahead.  This another semi-disappointment on the bottom-line as margins are coming in.

Shares closed up 0.55% at $494.02 in trading today, and the after-hours stock reaction is down about 4.1% at $473.50.  Google was at $595.30 the day of its last earnings report and shares fell on some of the same issues down to $550.15 the next day.

Again, there is not really any bad news here on the surface.  Margins may be coming down some as it spreads out its wings into newer areas, but the growth is still happening here.  If it gets too broad on its efforts it will become unmanageable for the young billionaires.  But growth is growth, and unfortunately share price reactions are share price reactions.

Two quarters a trend makes… at least as far as a stock reaction to the actual earnings report.

JON C. OGG