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Google profit up 19% amid slowing ad sales

July 17, 2009|David Sarno

Even if Google Inc. still has superhuman growth in its future, the company appeared practically mortal in the latest quarter.

The firm's 3% rise in second-quarter revenue, to $5.52 billion from $5.37 billion during the same period a year earlier, edged out analysts' modest expectations but looked nothing like years past, when Google regularly turned in huge revenue numbers, such as the 77% growth it posted in July 2006, the 58% uptick in July 2007 or even the 39% boost it reported last year at this time.

Profit at the Internet search giant grew 18% to $1.48 billion from last year's $1.25 billion, but the results disappointed Wall Street as shares of the Mountain View, Calif., firm fell 3.3% after hours, when the company's report was released. Google stock had risen about 1% during the day.

Separately, IBM Corp. reported a 12% increase in second-quarter profit, to $3.1 billion, thanks in part to cost-cutting measures, which offset a 13% revenue drop, to $23.25 billion. Hopeful of an economic recovery, IBM said it was ready to grab hold of growth opportunities and raised its profit projections for 2009. Its shares rose 3.2% to $110.64.

Having already captured nearly two-thirds of the online advertising market it helped create earlier this decade, Google may be finding that further growth doesn't come as easily it once did.

"They've become so big that they're starting to look like part of the industry," said analyst Jeffrey Lindsay of Sanford C. Bernstein & Co. Google's unreal growth has long shielded it from external factors that affected its advertising peers, he said. But now "they're much more impacted by the economy than ever before."

Advertisers paid 13% less on average for Google ads, which showed the firm wasn't immune to a still-shaky climate.

"Google as a business appears to have stabilized despite the still weak economic environment," said Google Chief Executive Eric Schmidt on a conference call with analysts, noting that the company has "implemented careful cost controls" as part of its strategy to stay lean during the downturn.

In a reversal of another of the company's longtime upward trends, Google's payroll shrank to 19,786 full-time employees, down from 20,164 at the end of March.

The multibillion-dollar question is, of course, what will Google do next? Over the years, the company has added a slew of innovative products to its portfolio, including its Google Maps application, its online word processor and spreadsheet, and most recently a new, open-source operating system, Chrome OS.

But those ancillary products, including YouTube, the Web's dominant video platform, have yet to add significantly to the coffers.

"People are hungry for details about the emerging of pillars of growth for the company," said Scott Kessler, an equity analyst at Standard and Poor's. "They've got to find other avenues."

Besides continuing to build its search business, Google said it is focusing on new businesses such as its mobile unit, which will have its operating system Android on nearly 20 cellphone models by the end of the year.

Google is confident about its ability to fight wars on multiple business fronts.

"Most businesses would struggle just managing with one," said Chief Financial Officer Patrick Pichette.

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david.sarno@latimes.com

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