International growth and continued overall traffic increases kept Google's earnings in line with analysts' estimates in the search giant's second quarter.
On Thursday, Google reported revenue for the quarter ending June 30 of US$5.37 billion, using generally accepted accounting principles (GAAP), up 39 percent over the same quarter last year.
Earnings per share were lower than expected: Google reported $4.63, compared to the $4.74 that analysts polled by Thomson Financial expected, on a non-GAAP basis.
Revenue from outside of the U.S. represented 52 percent of total revenue for Google, compared to 51 percent in the first quarter. In a recent research report, analysts at Citigroup wrote that international markets represent a notable growth driver for Internet companies like Google, and the analysts expected non-U.S. markets to be responsible for half or more of revenue for Google in the quarter.
Google continues to gain search market share despite the best efforts of its rivals. A recent report from Hitwise showed Google garnering nearly 70 percent of all U.S. searches, while the other leading names in search -- Yahoo and Microsoft -- have lost share.
The growth Google reported Thursday came despite an economic downturn in the U.S., and the company doesn't expect the continued economic bad news to affect its growth, according to Hal Varian, chief economist at Google, who spoke during a conference call to discuss the earnings. "It's like the Wal-Mart effect," he said. "As times get tough, people watch their dollars and in many cases do more shopping online."
Even sectors that might be expected to show lower volumes of search, such as real estate, cars and travel, continued to grow in the quarter, he said.
Executives on the call didn't reveal much about the progress of the integration of DoubleClick, the ad services company that Google finished purchasing in the first quarter. Google hopes to integrate DoubleClick's technology with its own so advertisers will be able to use one tool to advertise across many publishers, said Eric Schmidt, chairman and CEO of Google. The company should begin to offer that capability in the coming months, he said.
The executives also may have disappointed observers who were hoping for some more hints about Google's Android mobile-phone platform. "We're still expecting phones before the end of the year," said Sergey Brin, cofounder and president of technology, reiterating the vague company line.
Schmidt and Brin also mentioned that they are pleased with the performance of YouTube as well as other services, such as Google Apps. Google continues to experiment with ways to monetize YouTube, but Schmidt admitted the company hasn't hit on the perfect solution just yet. "On the revenue side [of YouTube], we're working on scenarios and products. I don't believe the perfect ad product has been invented yet," Schmidt said.
Brin pointed to growth in Google Apps, the Web application hosting service, particularly among enterprise users. Half a million businesses are using Google Apps for business productivity, he said, including 300,000 people at GE using Postini, a security product acquired by Google. He has high hopes for the future of Google Apps, which competes with hosted services from Amazon and others. "Ultimately, we think the cloud is just a great place to deploy apps, because of the simplicity for end-users to update and maintain them," Brin said.