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Earnings report is good news for Google, CEO

Larry Page gets high marks from Wall Street while reporting a 36% jump in profit.

July 15, 2011|By Jessica Guynn, Los Angeles Times
  • Wall Street continues to worry about Googles runaway spending. The company has added 2,452 employees since April, bringing its total workforce to 28,768. Above, attendees await the keynote address at a Google developers conference in San Francisco.
Wall Street continues to worry about Googles runaway spending. The company… (Marcio Jose Sanchez, Associated…)

Reporting from San Francisco — Larry Page got a second chance to make an impression on Wall Street.

This one was definitely better than the first.

Google Inc. posted a 36% surge in profit, blowing past analysts' expectations and overshadowing concerns about rising expenses and slowing growth.

The stronger-than-expected performance countered critics who said Google's hyper-growth days were behind it.

Google's chief executive stressed that the company's investments in its Android mobile device software and the Chrome Web browser would generate "huge new businesses for Google in the long run, just like search."

"I see more opportunities for Google today than ever before," Page said during a conference call with analysts. "Because, believe it or not, we are still in the very early stages of what we want to do."

The promising start to his second tenure as CEO — his first as CEO of a public company — reassured investors who were wondering whether he was capable of leading the world's largest Internet search engine as it faces increased competition from Facebook Inc. and other Internet highfliers that are luring away eyeballs and advertisers.

Page, the 38-year-old Google co-founder who replaced Eric Schmidt, CEO for the past decade, at the start of the second quarter, has taken the reins at a crucial point for the company. After years as a tech titan that could do no wrong on Wall Street, Google has been seen as lumbering giant trying unsuccessfully to keep pace with the swift innovation of competitors, sending its shares down to levels not seen since late 2006.

But Page got high marks from Wall Street on Thursday after sharing his vision for Google and discussing second-quarter results that topped analysts' expectations. His remarks sent shares soaring as high as 12% in after-hours trading, regaining the ground they lost after Page took over as CEO in early April. Google released its earnings report after the close of regular trading, during which the shares fell 2% to $528.94.

Page was pilloried after he made only a brief statement to analysts in his first quarterly conference call as CEO in April. This time he took charge of the call, stuck around for questions and even posted his comments on his company's new social networking service, Google+.

"Larry Page has definitely climbed out of the penalty box," BGC Partners analyst Colin Gillis said. "He clearly didn't like being in there."

Not only was he talking to investors, but he also was telling them what they wanted to hear, said Anthony Valencia, media analyst at TCW Group, which owns Google shares.

"It's an auspicious rebound after a shaky start," Valencia said. "Google certainly seems much more attuned to investor concerns this quarter with Larry staying on the call and answering questions while making a point of stressing how they are good stewards of shareholder capital."

Part of that stewardship is the early success of Google's most credible challenge yet to Facebook and Twitter for advertising dollars and the attention of Web surfers. Google+ has signed up more than 10 million people in less than two weeks as an invitation-only service, Page said. He called Google+ "an example of a focus of mine: beautiful products that are simple and intuitive to use."

Page reeled off other impressive statistics: More than 135 million Android smartphones and tablets have been activated and its Chrome browser has more than 160 million users.

But the most impressive numbers were second-quarter financial results. Google earned $2.5 billion, or $7.68 a share, in the April-to-June period, a 36% increase from $1.84 billion, or $5.71 a share, a year earlier. If not for costs of covering employee stock, Google said it would have earned $8.74 a share.

Revenue rose 32% to $9 billion, the first time Google has brought in that much money in a quarter. Without advertising commissions, revenue was $6.9 billion.

Still, Wall Street continues to worry about Google's runaway spending. Google has added 2,452 employees since April, bringing its total workforce to 28,768.

The big leap in sales helped shore up eroding margins. But the company's operating expenses in the quarter were $2.97 billion, about a third of revenue, up from $1.99 billion a year earlier. Its capital expenditures — what it shells out for data centers, servers and the like — was $917 million in the first quarter, up from $476 million a year earlier.

Page said Google may now be "a little ahead of where we need to be with headcount growth." But he also said that the investments Google is making, including hiring as many as 6,000 new employees this year, were crucial to its success.

"I understand the need to balance the short-term with the longer-term needs because our revenue and growth serve as the engine that funds our innovation," Page said. "But our emerging high-usage products can generate huge new businesses for Google in the long run, just like search. And we have tons of experience monetizing successful products over time."

jessica.guynn@latimes.com

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