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Google's 3Q profit seven times higher
(AP)
Updated: 2005-10-21 20:03
When Google Inc. commanded $85 per share in its August 2004 initial public
offering, the prospect of the stock quadrupling in less than 15 months ago
seemed inconceivable. It doesn't appear far-fetched now. The Internet search
juggernaut provided another boost to its high-flying stock Thursday by
announcing third-quarter financial figures that astounded even the most bullish
analysts, as well as it own management team.
"We surprised ourselves this quarter," Google CEO Eric Schmidt said during a
Thursday interview. "Business was much stronger than I expected."
Google earned $381.2 million, or $1.32 per share, a
more than sevenfold increase from 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. The highest analyst 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.
Google shares soared nearly 11 percent, or $32.55, in extended trading
Thursday to $335.75. Based on that enthusiastic reaction, Google's shares could
easily eclipse their all-time high of $321.28 on Friday.
"They are crushing" all expectations, said American Technology Research
analyst David Edwards. "They have an incredibly efficient business model."
The most recent 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.
Mountain View, Calif.-based 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 its lofty stock price.
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.
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