• by Laurie Sullivan  @lauriesullivan, July 16, 2009

Analysts and experts had been predicting slightly smaller growth than Google reported on its annual earnings call Thursday. The Mountain View, Calif. company reported second quarter revenue of $5.52 billion, compared with $5.37 billion for the same quarter last year. A Reuter's estimate had the expected revenue at $5.49 billion.

While reporting the earnings for the quarter ending June 30, the company admitted to slower sales growth as advertisers slowed spending. Shares of Google were down 2 percent to $432, in after-hours trading.

Net income rose 19% to 1.48 billion, or $4.66 per share, from $1.25 billion, or $3.92, compared with the year earlier, the Mountain View, Calif., company said in a statement.

Business appears to have stabled and consumers are clearly using search engines more, Google Chief Executive Eric Schmidt said during a call with investors.

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, rose 15% during the quarter, but declined 2%, sequentially. The average cost-per-click (CPC), which includes clicks related to ads served on Google sites and the sites of AdSense partners, declined 13%, compared with the year-ago quarter, but rose approximately 5%, sequentially.

Traffic Acquisition Costs, the portion of revenue shared with Google's partners, declined to $1.45 billion in the second quarter of 2009, compared with TAC of $1.47 billion in the second quarter of 2008. TAC as a percentage of advertising revenue came in at 27% in the second quarter of 2009, compared with 28% in the second quarter of 2008.

Google says it has slowed hiring at a quick clip and slowed giving workers lots of perks. The company says it had 19,786 employees as of the end of June, a decline from the end of March, when it reported having some 20,164 employees.

Google reported slower sales amid a slump in online advertising, but cost-cutting measures enabled profits to rise, offsetting any declines.

Net income rose 19% to 1.48 billion, or $4.66 per share, from $1.25 billion, or $3.92, compared with the year earlier, the Mountain View, Calif., company said in a statement Thursday. Revenue came in at $5.52 billion for the quarter, end June 30, 2009, up from $5.37 in the year-ago quarter, but admitted to slower sales growth as advertisers slowed spending.

"A quarter ago, we had no idea where the bottom was," Google CEO Eric Schmidt said during a call with investors. "We started the year and all of a sudden our metrics were off. It became clear, starting roughly around Christmas, people were spending more time searching, and when they purchased products they were of lesser value."

Schmidt says it appears as though, with the exception of the financial sector, other verticals, such as retail, appear to be recovering. Some indications tell Google to say the word "stabilizing," he says. "We're not at the moment looking at the downward spiral that we thought we might see six months ago."

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, rose 15% during the quarter, but declined 2%, sequentially. The average cost-per-click (CPC), which includes clicks related to ads served on Google sites and the sites of AdSense partners, declined 13%, compared with the year-ago quarter, but rose approximately 5%, sequentially.

Kevin Lee, Didit CEO, says Google's results are in line with the data it sees from clients in aggregate, though individual client spending has been volatile. The first quarter was the lowest, year to date, across most clients, but spending has been improving since for both clicks, more searchers searching, as well as marketers willing to spend.

"Unique to search marketing, Google and the advertisers rely on the consumer to engage in search behavior," Lee says. "So, consumer sentiment and disposable income have a huge impact on advertiser spending even if the advertiser has an interest in spending heavily.  Sometimes there just aren't enough consumers searching a specific keyword set."

Lee says Google's future revenue growth and profitability has as much to do with the consumer's search behavior as it does with advertiser wiliness to spend.

What saved Google from a worse situation was the fact that many advertisers have been waiting in line to get a shot at top positions for keywords and when a competitor of their pulled out or lowered budget often Google was able to replace the advertiser at nearly the same monetization while taking advantage of those larger, stronger advertisers who have been raising budgets, according to Lee.

Traffic Acquisition Costs, the portion of revenue shared with Google's partners, declined to $1.45 billion in the second quarter of 2009, compared with TAC of $1.47 billion in the second quarter of 2008. TAC as a percentage of advertising revenue came in at 27% in the second quarter of 2009, compared with 28% in the second quarter of 2008.