Updated from 5:14 p.m.

Try this sentence on for size: Google ( GOOG) shares are getting hammered.

The stock dropped more than 7% in late trading Thursday to $509.01 after the Net giant shocked Wall Street with a second-quarter earnings shortfall.

The Mountain View, Calif., company made $3.56 a share, excluding items. Net revenue, excluding the money Google shares with its advertising partners, was $2.72 billion.

Analysts surveyed by Thomson Financial were looking for a $3.59-a-share profit on net revenue of $2.68 billion.

At such a high EPS figure, the miss is less than 1%. But it comes as a big surprise from a company known to breeze right by Wall Street forecasts. Indeed, Google topped Wall Street expectations by more than 11% during its first quarter.

Still, Google's miss didn't come because of a lack of top-line growth, with revenue coming in around the high end of analysts' forecasts.

Instead, the company hired more aggressively than even it had planned to during the beginning of the year, CEO Eric Schmidt told investors during a conference call.

"We exceeded spending when it came to headcount, and going forward we will watch this very carefully," Schmidt said. The bulk of the new hires were sales, marketing, and engineering personnel, the company said.

Google also continued to spend aggressively on infrastructure and facilities. But Schmidt also said the company would ultimately benefit from the fast ramp-up of its system.

"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) 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.

"I'm pleased with the revenue, and there is nothing dramatic here to make me change my view on the stock," he said. "Expenses were a little above the Street, and that's the issue impacting earnings."

A closer look at Google's results also suggests reasons for optimism.

The company's closely watched traffic acquisition costs actually declined sequentially to 30% of advertising revenue for the second quarter, as compared to 31% during the first quarter. Investors often fear inflation in those costs as they can eat into revenue.

Revenue growth on Google-owned sites was also much stronger than that of revenue from affiliate sites. Revenue on Google's own site is of a higher quality and less susceptible to click fraud, among other things.

Google-owned sites saw revenue of $2.49 billion in the second quarter, a 74% increase over the same period last year. Google partner sites generated revenue of $1.35 billion, a 36% increase over the same period a year ago.

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