But the company still grew with typical energy, with revenue up 58% at $3.87bn and net income up 28% at $925m compared to the same quarter last year.
Earnings per share was $3.56, three cents shy of the analyst’s consensus estimate. Executives said this was due to an increase in spending on salaries, driven by hiring at the company’s various Googleplexes.
We hired a little faster than we planned. We looked at it and wondered ‘Is this a mistake or not?’ and decided it was not, chief executive Eric Schmidt said. We’ll watch it, we’ll be careful.
Schmidt also denied that the company’s scrap with eBay, which saw the auction giant temporarily suspend and then scale-back its substantial Adwords spend in retribution for stunt Google tried to pull during the quarter.
So far, the answer is no, no impact whatsoever, Schmidt said in response to an analyst’s question about the financial impact of the spat.
There was the summer seasonality that Schmidt had warned about three months ago, but it was not as big a drag on performance as expected. It was milder than expected he said yesterday.
Another key metric, traffic acquisition costs, the slice of advertising revenue that is given to the web site publishers that display the ads, was up in absolute numbers but down as a percentage of revenue.
Having gone up for the first time in the first quarter, TAC dipped below 30% for the first time, to 29.9% of revenue.
Our View
On the one hand, the earnings miss was surprising, as Google has made a habit of consistently beating estimates by margins you could drive a fleet of buses through.
On the other hand, it was not surprising at all. Google does not give out guidance, so when it misses estimates that’s precisely what it is missing – estimates, not necessarily its own targets or expectations.
Google’s hypergrowth will inevitably falter with time and scale, so the question to be asked now is whether this Q2 miss is represents the first sign of the brakes being applied to Google’s financial juggernaut. Our guess is no.
