Google 1Q Profit Rises 69 Percent
Thursday April 19, 9:08 pm ET
By Michael Liedtke, AP Business Writer
Google 1Q Profit Rises 69 Percent to Blow Past Analyst Views
SAN FRANCISCO (AP) -- Google Inc.'s first-quarter profit rose 69 percent, maintaining the online search leader's penchant for obliterating analyst estimates.
The stellar results released Thursday left little doubt that Google has widened its lead over its closest rival in Internet search and advertising, Yahoo Inc., whose first-quarter earnings eroded.
ADVERTISEMENT
Google detailed its sparkling performance on the same day that several major U.S. newspaper companies announced another quarter of financial decay, underscoring an advertising shift that is enriching Internet upstarts at the expense of traditional media outlets struggling to adapt to a new order.
Born less than decade ago, Google now reigns as the most profitable -- and probably most powerful -- force on the Web.
In the latest demonstration of its clout, 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 -- nearly as much money as the nation's largest newspaper publisher, Gannett Co., made all of last 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 analyst estimates.
"We are ecstatic about our financial results this past quarter," Google Chief Executive Officer Eric Schmidt crowed in a Thursday 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.
Pleasant earnings surprises have become routine for Google, which has succeeded in beating analyst estimates in all but one of 11 quarters since its ballyhooed initial public offering of stock in August 2004.
That track record had helped elevate Google's market value to nearly $150 billion, even before the stock price surged $15.15, or 3.2 percent, in Thursday's extended trading. Google shares fell $4.36 to close at $471.65 in regular trading on the Nasdaq Stock Market before the report was released.
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.
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 clicks.
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.
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. |
