Google Climb Put on Hold

Updated 6:45 p.m. EDT

There's just no pleasing some investors. Google(GOOG) posted second-quarter financials that showed revenue nearly doubling and a net profit that rose fourfold, yet the stock dropped in after-hours trading.

After reaching a record high of $317.80 Thursday morning, Google closed at $313.94, its highest close ever. But after the company's earnings report right after the market closed, the stock was down nearly 6%, falling below the hallowed $300 level.

There were two possible reasons for the sudden drop. On its conference call, CEO Eric Schmidt and CFO George Reyes both made clear that Google's third-quarter report may not be so hot. Not only is the third quarter a seasonally slow one for Internet surfing and ad spending, but Google's third quarter of 2004 was exceptionally strong because of improvements it made to its search algorithms and because the hype surrounding its planned IPO drew new users to its site.

"I would like to emphasize that Q3 is historically a slower quarter for growth in both advertising expenditures and Internet usage," Schmidt said right off the bat in the conference call. "Last year was particularly strong because of our ability to monetize traffic."

Investors may have been spooked by the prospect of a slow quarter in what has become a momentum stock, or they may have just wanted to cash in on near-term profits. But if they had been paying attention to Google's last earnings call three months ago, they would have heard Schmidt make similar comments, albeit with a little less emphasis.

The other possible factor in the stock's decline may have been caused by confusion in estimates for Google's EPS figure. Google announced a $1.19-a-share profit on the basis of generally accepted accounting principles -- not on the pro forma basis favored by many Internet companies. But the number bandied about before the report was for $1.21. So it appeared Google missed its number for the first time ever.