Google’s Q2 earnings have disappointed investors, with lower than expected profits leading to a drop in the web giant’s share price.

The company’s revenue rose by 58% to $3.87bn (£1.88bn), but its profits increased by a more modest 28%, to $925m (£450m). 

It has spent heavily on acquisitions so far this year, as well as increasing its headcount as it develops new products and enters new markets.

CEO Eric Schmidt said:

“We remain focused on addressing the tremendous opportunities we see worldwide, adding the talent and building the infrastructure that will allow us to continue to provide rich user experiences to Google users around the world.”

 This spending saw…

  • Google adding over 1,500 staff in the quarter. That takes its total headcount to 13,786, a 74% increase in the last 12 months.
  • The company also upped its spending on R&D by 88%.
  • But its biggest outlays were acquisitions – Google made eight purchases, most notably the $3.1bn (£1.5bn) DoubleClick deal and the purchase of online security firm Postini for $625m (£310m).

Elsewhere in the results…

  • Advertising on Google’s sites reached $2.49bn (£1.2bn) - 64% of its total revenues. That’s a 74% increase over the same period last year.
  • Adsense revenues increased by a lower amount - 36%.
  • Interestingly, Traffic Acquisition Costs (TAC), the portion of ad revenues Google pays to its publishing partners and affiliates, increased to $1.15bn from $1.13bn in Q1 2007, so is the web giant sharing more earnings with Adsense adopters? TAC relating to Adsense totalled $1.06bn in the period.
  • Revenues from outside the US grew to $1.84bn (£897m) - 48% of the company’s total turnover, compared to 42% in Q2 2006.
  • Google’s UK revenues were $600m (£292m); 15% of total turnover in the quarter, compared to 15% in Q2 2006 and 16% in Q1 2007. 

The Adsense figures are perhaps the most interesting here, as Google isn’t transparent with its publisher partners with regards to the revenue share it pays out. Although individual publishers will still be in the dark as to their cut, the $1.06bn Google represents an average commission of about 40-45% for Google.