Google Not Feeling So Lucky

Technically, Google (Nasdaq: GOOG  ) didn't "miss" its second-quarter earnings -- it doesn't give guidance in the first place. However, its results should remind investors that the search giant isn't bulletproof in bad times.

A 39% revenue increase, to $5.37 billion, would be impressive by most companies' standards -- but of course, Google isn't most companies. Net income increased 34% to $1.25 billion, or $3.92 per share, falling short of analysts' estimates. The bottom line was hindered by a reduction in interest income, which doesn't indicate any weakness in operations. But the company's also noticed some choppiness in paid ad clicks; although they're up 19% from last year this time, they've dropped 1% from last quarter.

Recessions generally put the pinch on advertising, which can hurt many businesses that rely on or covet ads -- not just Google's direct tech rivals like Microsoft (Nasdaq: MSFT  ) and Yahoo! (Nasdaq: YHOO  ) , but also old-school media companies like Gannett (NYSE: GCI  ) , New York Times (NYSE: NYT  ) , or CBS (NYSE: CBS  ) . Just yesterday, online advertising firm ValueClick (Nasdaq: VCLK  ) bore seriously ugly tidings about the second half of the year, too.

Google may be able to fare better than others, but it simply can't stop consumers and advertisers from cutting back on spending during recessions. Over the last eight months, I've asked and asked why many investors thought it would be different this time, for this company, with major economic difficulties imminent. (So much for those $800 price targets analysts euphorically doled out for Google shares last fall!)

Google's shares are now a far cry from its 52-week high of $747, which could spell opportunity for long-term investors who yearned to buy the company at more reasonable levels. However, given the sputtering economy, I suspect that investors searching for cheap Google shares might get even better prices in the months ahead.

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Microsoft is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

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  • Report this Comment On July 22, 2008, at 10:33 PM, demetrik wrote:

    One thing that I find interesting is that Google appears to have deliberately chosen to display less advertisements. There does not appear to be any less competition in the Google pay per click keyword auctions but Google is not cluttering their website with ads like Yahoo does.

    Perhaps they want to give a more positive experience for users by not flooding them with ads. Or maybe what they're really doing is showing that they can control their profits and share price. Short sellers beware.

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