Google Miss Stuns Wall Street

"Network effects are driven by scale, and Google is the beneficiary of that," he said. "We continue to make investments and we are also seeing the benefits of this."

Google also said that traffic to its site continues to climb, and that it continues to tone down the number of ads it places next to search results in the hope of wooing more users.

Looking at the bottom line, Google made $925 million, or $2.93 a share, for the quarter ended June 30, up from the year-ago $721 million, or $2.33 a share. Gross revenue rose to $3.87 billion from $2.45 billion a year earlier.

Google's shortfall comes just days after rival Yahoo! (YHOO Quote) was hammered following a soft second quarter and weak second-half forecast.

The earnings shortfall isn't Google's first. But it comes as a surprise because the company, unlike Yahoo!, has been such a steady performer since it came public at $85 a share back in August 2004.

Indeed, bulls might well note that previous profit disappointments have provided good buying opportunities. When Google last missed a quarter back in January 2006, shares tumbled into the $370s in a 15% after-hours selloff.

Indeed, one analyst who asked to remain anonymous said the results don't change his bullish view on the stock, given the strong top-line growth numbers.