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Google's Profit Spikes But Misses Estimates

Google continues to make piles of cash from search advertising even if it can't always meet the high expectations of Wall Street's financial analysts.

The company today reported a second-quarter profit of $925 million and earnings per share of $2.93. While this sum was less than the $1 billion Google reported in Q1, it was still a 28 percent vault from the $721.1 million and $2.33 per share the search giant raked in for the same period last year.

Google's profit also fell short of Reuters Estimates analysts, who had been expecting a net profit of $3.01 per share.

Google reported sales of $3.87 billion for the quarter, a 58 percent hike compared to the $2.46 billion it logged in Q2 2006 and an increase of 6 percent compared to the $3.66 billion tallied in Q1. Reuters Estimates analysts had expected sales in this vicinity.

Revenue excluding the $1.15 billion in traffic acquisition costs, or commissions paid to advertising partners, was $2.72 billion. This sum was up more than 60 percent from $1.67 billion a year earlier.

Google CEO Eric Schmidt said on a conference call that Google delivered strong revenue performance in core search during a seasonally weak quarter, and is busy executing on its search and applications strategy around the world.

However, while he did not say Google is planning layoffs, he noted Google is carefully watching its mounting headcount number, which is 13,786 full-time employees and rising thanks to the glut of acquisitions and hiring the company has done in the U.S. and abroad.

"From the Google perspective, when we look at the quarter, one area we exceeded over our expense plan was headcount," Schmidt said. "We're very pleased with the talent we've brought on board, but going forward we're going to watch this area very closely."

Google is the overwhelming search leader, with 49.5 percent of the U.S. market through June, compared to shares of 25.1 percent for Yahoo and 13.2 percent for Microsoft, according to metrics released this week by researcher comScore.

The pros of that distinction include big financials, a stock price well over $500 a share and a $12.5 billion cash balance. But the cons may be looming.

This week, a U.S. House subcommittee said it plans an additional inquiry into the proposed $3.1 billion merger between Google and DoubleClick, which is already under review by the Federal Trade Commission (FTC).

This could make it more challenging for Google to seal the deal, which would give Google a dominant position in the two major types of online ads. Google's AdSense business is algorithm-driven and is based on clickable links; DoubleClick is a leader in the market for placing targeted banner ads on sites like MySpace and America Online.

Google's financials come days after chief search rival Yahoo reported a 2 percent dip in earnings.

Shares of Google dropped 91 cents to $548.59 after the bell.