Video: Google keeps getting bigger and bigger

updated 10/19/2006 8:58:47 PM ET 2006-10-20T00:58:47

Summer is supposed to be a financial drag for Internet companies because most people have better things to do than sit in front of a computer and click on ads.

But not even that seasonal challenge was enough to slow down Google Inc. and its Internet-leading search engine, which seems to spit out profits as quickly as it does answers.

Demonstrating its financial firepower once again, Google surged to another record quarterly profit during the summer and even outstripped its wintertime growth rate.

“I am pretty amazed,” Google Chief Executive Eric Schmidt said during an interview after the results were released Thursday. “I did not expect us to do as well as we did.”

Investors seemed awe-struck too. Google’s stock price climbed by more than 7 percent in after-hours trading, signaling the company’s market value may rise by another $10 billion Friday. That’s enough wealth to finance another six deals similar to Google’s recently announced plans to buy the Web’s hottest video service, YouTube Inc.

The performance surpassed analysts’ estimates by a whopping 20 cents per share and underscored the Mountain View-based company’s widening advantage over its main Internet rivals.

Yahoo Inc., which runs the Internet’s second-largest advertising network behind Google, has been hurt by slowing revenue growth most of this year — a problem that contributed to a 38 percent drop in its third-quarter profit.

“The difference between Google and the second and third place players has become enormous,” Global Equities Research analyst Trip Chowdhry said. “This definitely shows that Google is going to own the next generation of the computing environment.”

No matter the industry, few companies have ever matched Google’s remarkable run of growth in the eight years since co-founders Larry Page and Sergey Brin launched their quirky business in a Silicon Valley garage — part of a house that Google recently bought as a keepsake.

Most companies find it increasingly difficult to sustain their growth pace as they grow larger, but Google so far has been able to defy conventional thinking.

The Mountain View-based company earned $733.4 million, or $2.36 per share, for the three months ended in September. That represented a 92 percent increase from net income of $381.2 million, or $1.32 per share, at the same time last year.

Back in the first quarter, Google’s profit rose by a more pedestrian 60 percent from last year.

If not for expenses to cover employee stock compensation, Google said it would have earned $2.62 per share in the third quarter— well above the average estimate of $2.42 per share among analysts polled by Thomson Financial.

Revenue for the period totaled $2.69 billion, a 70 percent increase from $1.58 billion last year.

After subtracting the commissions paid to Google’s ad partners, revenue fell to $1.86 billion. That figure also topped analyst estimates by about $50 million.

Surpassing Wall Street’s lofty expectations is nothing new for Google, which now has blown past analysts’ projections in all but one of the nine quarters since its much-ballyhooed initial public offering of stock in August 2004.

The routine delights investors. Google shares gained $6.75 to close Thursday at $426.06 on the Nasdaq Stock Market, then climbed by $31.59, or 7.4 percent, in after-hours trading.

Google’s success so far has hinged on its search engine, a piece of revolutionary technology that continues to attract new users.

In September, Google’s held a 45 percent share of the U.S. search market, up from 44 percent in August, according to comScore Media Metrix. Yahoo’s search share dipped to 28 percent in September, down from 29 percent the previous month while Microsoft Corp.’s share continued to hover around 12 percent, Media Metrix said.

That comfortable lead apparently hasn’t made the company lackadaisical. Brin told analysts that Google recently introduced several improvements that increased the breadth and freshness of the search engine’s index.

Meanwhile, Google continues to find new ways to pick out the ads most likely to pique enough interest to be clicked on, as Google makes money based on the number of clicks, Brin said.

“There are always new ways to monetize,” Brin told analysts, investors and reporters. “I don’t see an obvious ceiling.”

Toward that end, Google already is eyeing new opportunities for online video ads with its planned acquisition of YouTube Inc. The deal is expected to close in the next month or so.

Although Google is buying San Bruno-based YouTube with its prized stock, the company also has plenty of money to finance its grand ambitions. Google ended September with $10.4 billion in cash.

As grows, Google is hiring more workers at a furious pace. More than 1,400 more workers joined Google in the third quarter, expanding its payroll to just under 9,400 employees. For the past year, Google has been hiring an average of a dozen new employees per day.

The new arrivals can only hope they do as well as the Google workers that have already become millionaires, thanks to the extraordinary growth that has fueled a more than fivefold increase in the company’s stock price since the IPO.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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