Google earnings fall short; Says it can thrive in weak economy

Updated: Google's second quarter earnings missed Wall Street estimates and executives moved to allay concerns about the company's ability to weather a dicey ad environment.

The search giant on Thursday reported net income of $1.25 billion, or $3.92 a share, on revenue of $5.37 billion excluding traffic acquisition costs (statement). Excluding charges, Google reported second quarter earnings of $4.63 a share. Wall Street was expecting earnings of $4.74 on revenue of $5.37 billion. A picture is worth 1,000 words:

Aside from an earnings miss a sequential decline in paid clicks couldn't have helped. However, let's put this in perspective. Most companies would kill for this quarterly performance.

On the company's conference call, executives said they were pleased with the quarter and reiterated that Google wasn't seeing big macroeconomic issues. The most notable item on the call was Google's analysis of economic conditions.

"We're very well positioned in a slowdown especially if it gets worse," said CEO Eric Schmidt, who added there would be "a flight to quality" if the economy tanked.

Hal Varian, Google's chief economist, talked about "a Wal-Mart effect" where consumers looking to save a few dollars will research and buy more goods online. Presumably these folks would use Google to save a few bucks.

Color me skeptical. Anyone that lived through the dot-com bust has heard these lines before and no company is immune if there's a recession. Nevertheless, I'd agree Google is better positioned than its peers.

Among the early highlights:

As usual, CEO Eric Schmidt said Google was pleased with "what we think are good results." He also talked up Google's deal with Yahoo and reiterating that the two remain fierce competitors.
On DoubleClick, Schmidt noted that integration was underway and the team is together to carry display ad forward.
Varian said that the company was seeing positive trends across its verticals even in ones--financial services and automotive that have been getting pummeled. The message: ROI based ads will be last to get cut.
Executives didn't offer any real color on DoubleClick's performance other than noting that the unit was doing well. Memo to Google: It would sure be nice to see a display ad breakout next go round.

By the numbers (revenue includes TAC):

Operating income was $1.58 billion, up from $1.55 billion in the first quarter.
Traffic acquisition costs were $1.47 billion.
Google site revenue was $3.53 billion, up 42 percent from a year ago, but up 4 percent from the first quarter. Partner sites (AdSense) was $1.66 billion, up 22 percent from a year ago, but down from the first quarter. International revenue was 52 percent of the total compared to 48 percent from a year ago.
Paid clicks were up 19 percent, but down 1 percent from the first quarter.
Google had 19,604 full-time employees as of June 30.
Capital expenditures were $698 million, most of which was spent on IT.

According to Citi analyst Mark Mahaney's cheat sheet, Google's results generally fell into the neutral to negative category.

A few slides to ponder:

Google revenue...