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Earnings: Google Execs Blame Disappointing Profits On Hiring And Seasonality

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While Google (Nasdaq: GOOG) posted a 28.3 percent increase of net income of $925.1 million in Q2, as we reported earlier, the company failed to meet expectations. During its conference call with investors and analysts, Google executives sought to put the quarter’s travails in more positive light, saying that it hired more individuals than it had planned, which led to higher bonus payouts. Secondly, the company pinned its less than stellar earnings on seasonal issues.

Head Count: Eric Schmidt, Google’s chief executive, said that he does not believe Google is in the midst of a slowdown and insists that the situation is quite the opposite. “We overspent against our own plans on head count. Some of that was related to bonus accrual, some of it was related to faster hiring than we had planned. In looking at it, we decided it was not a mistake, because the people we brought in were so good, that we were happy we did this. We just need to watch that more carefully in the future.”

Paid Clicks: Although Paid Clicks were up about 52 percent in Q2 compared to the same period a year ago, the numbers were flat versus Q1. Schmidt said that flatness is not out of the ordinary for the second quarter. “Typically, this is a slow quarter for paid click growth. If you look at it on a year-over-year basis, it’s actually consistent and relatively healthy. I would describe this quarter as one with particularly strong traffic flows domestically and internationally.” Sergey Brin, founder, president of technology, also noted that Google’s AdSense program also was affected by the time of the year. “We made a number of changes to AdSense implementation, policy changes, such as termination of partners who weren’t meeting our benchmarks.”

Litigation and Regulation: Google faces ongoing legal battles over its plans to create a digital library with its Google Book Search initiative and the $1 billion copyright infringement suit brought by Viacom over YouTube. Schmidt: “Both of these issues are very important from the standpoint of principle. And it would be great if both those would go away or be resolved through technology. But we take this very seriously, because we were sued by people who were unhappy with what we were doing and what we considered to be right. With respect to broader litigation issues, Google is in the information business. There’s always the potential that governments will decide that what we’re doing is appropriate or inappropriate and make our business harder. However, there’s no short-term threats. And the opening up of the internet in other countries is really putting pressure on governments to make information more available and open up their information borders.”

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