Google 1Q Profit Rises 69 Percent
Just like its Internet-leading search engine has a knack for finding the information
people ask for, Google Inc. keeps giving Wall Street what it wants -- scintillating
earnings growth that eclipses analyst estimates quarter after quarter.
The company has flashed its financial prowess once again, reporting a 69 percent
increase in first-quarter profit to surpass analyst projections by 38 cents
per share. Google has now delivered pleasant earnings surprise in all but one
of 11 quarters since going public in August.
Investors showed their appreciation by driving up Google's stock price by $17.66,
or 3.7 percent, to $489.31 in Friday morning's trading on the Nasdaq Stock Market.
The report was released after Thursday's close.
It has become more difficult for Google to impress Wall Street because its
stock is scaling lofty heights and investors have become accustomed to the company's
eye-popping earnings growth, said Global Crown Capital analyst Martin Pyykkonen.
"The stock isn't going to double or triple like a few years ago, but it's
still a good growth stock to have in your portfolio," he said.
Born less than decade ago, Google now reigns as the most profitable -- and
probably most powerful -- force on the Web.
As usual, Google's financial firepower flowed from its search engine. That
ubiquitous tool has become the hub of the Internet's largest marketing network
and appears to be getting even better at identifying the right ads to display
with its search results, which in turn helps elicit more revenue-generating
The paid clicks on the ads within Google's vast network increased 52 percent
in the first quarter compared with year-ago levels. And more of the clicks are
occurring on Google's own Web sites, increasing the company's profits because
the revenue doesn't have to be shared with an advertising partner.
Mountain View-based Google is getting more opportunities to serve up ads largely
because Web surfers are using its search engine more frequently. In March, Google
processed 3.5 billion search requests in the United States, translating into
a 48 percent share of the overall market, according to comScore Media Metrix.
Sunnyvale-based Yahoo was a distant second, processing 2 billion search requests,
or 27.7 percent of the U.S. market.
While Yahoo's first-quarter profit fell, Google earned $1 billion, or $3.18
per share, during the first three months of the year. That compared with net
income of $592.3 million, or $1.95 per share, in the same period last year.
It was also the second consecutive quarter in which Google earned $1 billion
-- more than many more-established media companies make in an entire year.
If not for expenses incurred for employee stock compensation, Google would
have earned $3.68 per share. That figure topped the average estimate of $3.30
per share among analysts surveyed by Thomson Financial.
Quarterly revenue reached a new company high of $3.66 billion, a 63 percent
increase from $2.25 billion a year earlier.
After subtracting advertising commissions and other payments to its partners,
Google's revenue totaled $2.53 billion. That amount was about $40 million above
"We are ecstatic about our financial results this past quarter,"
Google Chief Executive Officer Eric Schmidt crowed in a conference call with
analysts. Schmidt, Google's CEO for nearly six years, also became chairman of
the board in a promotion announced Thursday.
The quarter wouldn't have been as impressive without a favorable tax rate of
26 percent during the first quarter -- below the company's projected rate of
roughly 30 percent for the entire year. Google's earnings would have fallen
by 18 cents per share had the first-quarter tax rate been 30 percent, American
Technology Research analyst Rob Sanderson estimated.
Google-owned sites accounted for 62 percent of first-quarter revenue, up from
58 percent at the same time last year. The company also is becoming increasingly
influential outside the United States: Google booked 47 percent of its revenue
internationally in the first quarter, up from 42 percent last year.
Although Google has been trying to develop other revenue channels beyond the
Internet, online advertising continues to produce virtually all of its profits.
The company is expected to become an even more dominant force in that business
with last year's $1.76 billion acquisition of online video leader YouTube Inc.
and its recently announced $3.1
billion deal to buy Internet ad distributor DoubleClick Inc.
"It's becoming such a powerhouse franchise that it's difficult to see
where the competition is going to come from," Sanderson said.
Global Equities Research analyst Trip Chowdhry still thinks Google's dependence
on its search engine could become its Achilles' heel. "Right now everything
looks good, but it still seem like one-trick pony," he said. "The
question is can they sustain this six to eight months down the road?"
Although Google still isn't making money off of YouTube, the site is "going
gangbusters," co-founder Larry Page said during Thursday's conference call.
Worried that Google will gain too much control over the online advertising
market, both Microsoft Corp. and AT&T Inc. are urging
government regulators to block the DoubleClick deal.
The complaints from two companies that have been previously penalized for monopolistic
behavior amused Google co-founder Sergey Brin. "I hear Standard Oil is
going to complain too," Brin said in a Thursday interview. "I think
(the concerns) are misplaced."
Besides buying other companies, Google is investing heavily to accommodate
its growth by hiring workers and adding computer capacity at its data centers.
The company spent $597 million on capital expenditures in the first quarter
and hired another 1,564 employees to expand its work force to 12,238 people.
Even so, the company ended the quarter with $11.9 billion in cash.