Fancy That! Google Misses on Earnings

Everybody knew Google was spending big bucks on everything from data centers to acquisitions. But investors, who have bid the stock up 20% so far this year, clearly had been hoping the search giant’s commanding position would produce profits to more than make up for that spending.

Not this time. Second-quarter profits rose 28%, but they were a few pennies per share shy of what analysts had expected. The stock’s down almost 7% in after-hours trading as a result.

This reaction could shift one way or another as the earnings call gets underway and investors digest the news, but it’s clear Google’s spending continues to rise. Operating expenses are up 4 percentage points from the first quarter, to 31% of revenues, as costs of data centers, credit card processing, and content acquisition costs keep rising. And Schmidt mentioned in the earnings call that the company exceeded its headcount goal, adding more than 1,500 people in the second quarter alone for a total of 13,786.

Rivals such as Yahoo!, which is disappointing investors even more, should take little comfort in this, since this spending is all aimed at cementing a lead that’s even starting to worry government watchdogs. But it’s also possible that Google is finally discovering that it, too, is subject to the law of gravity. Well, a little—at 58% revenue growth, Google’s still flying higher than any of its rivals.

More to come after the call.

Update: Schmidt is saying he doesn’t think Google made a mistake in hiring more than it had planned—he likes the people hired—but said it will be watching that closely. Sounds like it will be tightening up a bit.

Schmidt was asked if there was any impact from eBay’s recent pullback on Google ad spending. “No impact whatsoever,” he answered.

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