Google is good at finding things on the Internet, but it's apparently not as adept at managing its money. The company disappointed investors Thursday with earnings that reflected falling interest income and increased spending for currency hedges.

Chief Financial Officer George Reyes cited lower yields on cash holdings, unsurprising since the Federal Reserve had been pushing down interest rates from September through April, and the costs of acquiring advertising technology company DoubleClick.

Google also spent more to hedge foreign currency exposure, as more than half of its revenue now comes from abroad. Of course, had they Googled "falling dollar" this year, the currency hedges might not have seemed crucial.

Investors took a bite out of Google's shares in after-hours trading on Thursday when the Internet search overlord reported second-quarter earnings after the bell that fell below Street expectations. Google shares dropped 10.2%, or $54.50, to $478.94, moments after the company reported.

"Unless you blow results in this market, investors are going to be very skeptical," said Jeffrey Lindsay, analyst at Sanford C. Bernstein. "It looks as if they've beaten consensus on revenue. But the issue is the margins, they're a little disappointing. That's why earnings are low."

He added, "The economy's been hard on Google's network rather than Google's owned and operated business. That's why we're seeing lower gross margins."

The company said it earned $1.3 billion, or $3.92 per share, during the three months ended in June. That represented a 40.5% increase from net income of $925.1 million, or $2.93 per share, at the same time last year.

If not for costs incurred for employee stock compensation, Google said it would have earned $4.63 per share. That figure missed the average earnings estimate of $4.74 per share among analysts surveyed by Thomson Financial.

It marked just the fourth time that Google hasn't exceeded analyst expectations in its four years as a public company.

Sales rose 38.5%, to $5.4 billion, from $3.9 billion.

Google-owned sites, like YouTube, generated revenues of $3.5 billion, or 64.8% of total revenues, in the second quarter of 2008, a 40.0% increase over second quarter 2007. Google’s partner sites generated revenues, through AdSense, of $1.7 billion in the quarter, up 21.4% from the second quarter of last year but were down 1.0% from the first quarter of 2008.

International revenues totaled $2.8 billion, representing 51.9% of total sales and slight growth over the previous quarter. Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of its AdSense partners, increased 19.0%, the company said.

Source:Forbes.com