Google profits soar

Google has reported on a 69 per cent rise in quarterly net profit, easily beating expectations as the Web search leader gained market share, sending its stock up two per cent after-hours.

Net income in the first quarter rose to $1.0 billion, or $3.18 per share, from the year-earlier quarter’s $592 million, or $1.95 a share. The result beat the average Wall Street forecast of $2.91 per share, according to Reuters Estimates.

Chief Executive Eric Schmidt sounded exuberant on a conference call following the results, but cautioned that growth typically slows in the middle of each year.

‘We are ecstatic about our financial results this past quarter,’ Schmidt said. ‘Our core business is very strong. It is the core business that is driving our success.’

Gross revenue rose 63 per cent to $3.66 billion, including traffic acquisition costs of $1.13 billion paid to affiliated websites that act as billboards for Google ads. Analysts had expected gross revenue, on average, of $3.57 billion, with estimates ranging from $3.43 billion to $3.70 billion.

‘Definitely impressive. They crushed the earnings number despite hiring more aggressively than we thought,’ Piper Jaffray analyst Gene Munster said. ‘The bottom line is it was a great quarter in all metrics.’

Global Crown Capital analyst Martin Pyykkonen said although Google had not been overwhelming quarterly forecasts as in past years, Wall Street was getting used to that. ‘And the company is showing good gains versus Yahoo,’ he added.

Excluding stock-option expenses, profit was $3.68 per share, up from the $2.29 a year before. Wall Street was looking for profit excluding one-time items of $3.31 per share.

Like other Internet services, Google typically sees slower seasonal growth during the second and third quarters, reflecting historical trends that have held true since the earliest days of the Web.

Google shares dipped $4.36 ahead of the report to close at $471.65 in regular-session trading on Nasdaq. After the results, the stock rose to $485 in extended trade.

As Google gets bigger, revenue growth is set to decelerate to about 50 per cent this year from 67 per cent in 2006. Meanwhile, it is spending heavily on new services and data centres to run them, putting pressure on margins.

‘Their gains have extended beyond the point where most people thought was possible,’ said Rick Meckler, president of money manager LibertyView Capital Management. ‘For now it’s still growing at a phenomenally healthy pace.’

The trends of slowing revenue growth have weighed on the stock, which enjoyed spectacular gains following its initial public offering in August 2004. Shares are up just 3.5 per cent so far this year.

Google is the world leader in pay-per-click advertising that runs alongside search results on its own sites and on affiliated websites that serve as advertising partners.

It derives roughly 99 per cent of its revenue from such text ads, although it is moving quickly to expand into online video, graphical, television, radio and print advertising markets.

Google’s surging growth and rapid expansion into new markets has led established rivals to launch a variety of attacks on the Web search leader.

Since last month alone, media conglomerate Viacom filed a $1 billion lawsuit accusing Google and its YouTube video sharing site of tolerating the piracy of copyrighted television programs. New Tribune owner Sam Zell has accused Google of having a business model built on theft.

Meanwhile, Google’s $3.1 billion deal to buy DoubleClick, its biggest acquisition to date, drew howls of ‘antitrust’ from rivals in software, telecoms and media after it was announced last week.

Disclaimer: Some pages on this site may include an affiliate link. This does not effect our editorial in any way.

Todays Highlights
How to See Google Search History
how to download photos from google photos