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updated: 7/13/2011 8:16 AM

Google's 2Q results to review action-packed period

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  • Google receptionist Lee Stimmel works at the front desk in the company's office in New York.

      Google receptionist Lee Stimmel works at the front desk in the company's office in New York.
    Associated Press

 
Associated Press

SAN FRANCISO -- Internet search leader Google Inc. is scheduled to report its second-quarter earnings on Thursday after the stock market closes.

The April-June period marked an eventful changing of the guard at Google as co-founder Larry Page returned as its CEO for the first time in a decade.

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After becoming CEO April 4, Page shook up Google's management and quickly delivered on his promise to confront the online advertising threats posed by the likes of Facebook's trendy social network and Groupon Inc.'s daily deals.

But his reign also has been greeted by government investigations that could prove even more nettlesome for Google.

Investors don't seem to know what to make of the aloof Page, partly because he has steadfastly shunned the limelight. His only public comments so far as CEO came during a cursory appearance during an April conference call discussing Google's first-quarter earnings and a brief presentation at the company's annual shareholders meeting last month.

The uncertainty about Page's management style and skills have contributed to a roughly 15 percent decline in Google's stock price since the company announced in January that Eric Schmidt would step down as CEO to make way for his 38-year-old understudy. The technology-driven Nasdaq composite index has edged up by 3 percent during the same period.

Google shares closed Tuesday at $534.01.

The company's market value also has been stung by concerns that Google may become distracted, and eventually handcuffed, by regulatory investigations into its business practices. A broad inquiry by the Federal Trade Commission into whether Google has abused its dominance in Internet search to stifle competition looms as the biggest worry. European regulators and the Texas attorney general had begun similar investigations before Page took over as CEO.

Another government investigation remains a mystery because Google has said little disclosing it set aside $500 million from its first-quarter earnings to cover its potential bill. Citing unnamed people familiar with the matter, The Wall Street Journal has reported the U.S. Attorney General in Rhode Island and the U.S. Food and Drug Administration have been conducting a criminal probe into whether Google improperly profited from ads bought by online pharmacies or other sellers that weren't licensed to sell the drugs.

Google's stock has rebounded a bit since the company unveiled its answer to Facebook, a service called Plus, in late June. Although it's open only to people who get invited by Google or other users, Plus attracted 10 million users in its first two weeks of operations, according to an analysis by Ancestry.com founder Paul Allen.

Google Plus also is getting positive reviews, raising hopes that Google has finally come up with a way to collect more information about people's recommendations to make its search results more compelling and, perhaps most importantly, provide an alternative to Facebook, which has amassed more than 750 million users during its first seven years in business.

Facebook's rapid rise has been attracting more advertisers, some of whom who are spending less money on Google's search-driven ad system.

Google also is trying to counter Groupon's online coupon service, which allows local merchants to sell bargains that may only be available for a day or less. After unsuccessfully trying to buy Groupon for $6 billion last year, Google began working on its own daily deal service. The alternative, called Google Offers, began testing in Portland, Ore., last month and expanded into New York City and the San Francisco Bay area Tuesday.

Even without the added bells and whistles, Google is still growing at a robust rate. Its second-quarter net revenue -- the amount of money after paying commissions to ad partners -- is expected increase by more than 20 percent from the same time last year. Forecasting Google's earnings, though, has become trickier during the past year because the company has been increasing its spending at an even faster rate to ensure it has enough computers and engineering talent to pursue its plans to build an even bigger Internet and advertising powerhouse.

After starting the year by giving all its workers raises of at least 10 percent, Google vowed to hire more than 6,200 employees this year -- the most in its 13-year history. RBC Capital Markets thinks Google added about 2,200 more people to its payroll during the second quarter after adding about 1,900 in the first quarter. The latest employee increases will include about 450 people picked up in Google's $700 million acquisition of airline fare tracker ITA Software.

WHY IT MATTERS: As the first Internet company to report its second-quarter results, Google will give investors a better handle on how much the economy's springtime sluggishness slowed one of its fastest-growing sectors.

WHAT'S EXPECTED: Analysts polled by FactSet expect earnings of $7.84 per share, excluding expenses for employee stock compensation, on revenue of $6.54 billion, after subtracting Google's ad commissions.

LAST YEAR'S QUARTER: In the second quarter of 2010, Google earned $1.84 billion, or $5.71 per share, on revenue of $6.82 billion. Excluding stock compensation revenue, Google earned $6.45 per share on revenue of $5.09 billion, after subtracting ad commissions.

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