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Google posts profit, tops expectations

Google Inc.’s rapidly rising profits soared to new heights in the third quarter as its Internet-leading search engine churned out a sevenfold earnings improvement that blew past analyst expectations.
/ Source: The Associated Press

Google Inc.’s rapidly rising profits soared to new heights in the third quarter as its Internet-leading search engine churned out a sevenfold earnings increase that blew past analyst expectations.

The Mountain View, Calif.-based company said Thursday that it made $381.2 million, or $1.32 per share, during the three months ended in September. That compared with net income of $52 million, or 19 cents per share, a year ago. Last year’s results included a $201 million charge to account for a legal settlement with rival Yahoo Inc.

If not for charges related to a recent acquisition and employee stock options issued before the company went public 14 months ago, Google said it would have earned $1.51 per share.

That figure easily exceeded the consensus estimate of $1.36 per share among 31 analysts surveyed by Thomson Financial. Even the most bullish analysts hadn’t expected Google to fare as well as it did; the highest earnings estimate had been $1.46 per share.

Google’s revenue for the quarter totaled $1.58 billion, nearly doubling from $805.9 million last year. After subtracting the commissions that Google paid to other Web sites in its advertising network, the revenue stood at $1.05 billion, exceeding the Wall Street estimate of $944 million.

The results were released after the stock market closed Thursday. Google’s shares fell $5.50 to close at $303.20 on the Nasdaq Stock Market, then surged by $32.55, or 10.7 percent, in extended trading.

“We surprised ourselves this quarter,” Google CEO Eric Schmidt said during a Thursday interview. “Business was much stronger than I expected.”

The profit — the highest for any three-month period since Google’s inception seven years ago — came during a typically slow season for Internet companies because people spend less time at their computers during the summer.

Google executives also had warned that it might be difficult for the company to post substantial increases from last year’s third quarter when a flood of publicity devoted to its August 2004 initial public offering helped drive more traffic to its Web site.

But the introduction of new products, such as instant messaging, and upgrades to existing services, such as mapping, helped Google attract more summer traffic than anticipated, executives said during a Thursday conference call.

“We are effectively connecting with users and customers in relevant ways,” Schmidt said.

Excluding ad commissions, Google’s third-quarter revenue growth accelerated by 18 percent from the second quarter. Not even the most bullish analyst believed Google’s sequential revenue increase would be above 10 percent.

Even as the company diversifies, Google’s online search engine remains the company’s moneymaking hub, shrugging off stiffening competition from its biggest rivals, Yahoo and Microsoft Corp.

Google handled 45 percent of U.S search requests in September, outdistancing 23 percent for Yahoo and 12 percent for Microsoft’s MSN, according to research released Thursday by Nielsen/NetRatings.

As an ever-growing audience flocks to Google’s search engine to find information, more advertisers want to have their Web links displayed alongside search results related to their products and services.

The increased ad demand is enabling Google to boost its profit at a breathtaking pace — something it needs to do to support the lofty price of its stock, which has more than tripled since the company’s IPO.

Based on Thursday’s extended trading, Google’s shares could easily eclipse their all-time high of $321.28 on Friday.

In its quest for more profit, Google wants to build a free high-speed wireless Internet access service in San Francisco to ensure more people in that city can connect to its search engine and, theoretically, click on its ads. If San Francisco picks Google’s proposal over 25 others, the company plans to begin building the wireless network immediately, Schmidt said.

Google also has teamed up with Comcast Corp., the nation’s largest cable company, to explore buying a minority stake in Time Warner Inc.’s AOL. Yahoo and Microsoft also are stalking AOL, an alliance that would hurt Google because AOL is its biggest advertising partner.

Schmidt deflected analyst questions about the AOL courtship during Thursday’s conference call. “They are a very, very valued partner and we hope it will be true forever,” he said.

Google’s growth is helping to fund a steady expansion of its work force. The company hired another 806 employees between June and October, expanding its payroll to just under 5,000 workers.