Google Inc’s rapidly filling coffers appeared to be brimming over in the third quarter as its search engine churned out a sevenfold earnings increase well beyond analyst predictions.
The Mountain View based company said last Thursday that it made $381.2 million, or $1.32 per share, during the three months ending September. This is in comparison to 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.
Google, which makes virtually all of its money from online advertising, is blossoming thanks to the ever-growing number of its users and expanding its array of features. In September, the company's website had 81.2 million unique visitors in the United States alone, up from 62.9 million a year earlier. Google's ability to help advertisers reach specific audiences has enabled the company to keep growing. "We make quality improvements to our advertising network," Google chief executive Eric Schmidt reacted. "When you improve the quality, that ad is worth more money."
Google has deployed more sophisticated technology to select which of the millions of advertisements to put on each page and in what order. "It is really about getting the right ad to the right person at the right time and having them click on it," Schmidt said.
If it not were for the 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 had not 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 totalled $1.58 billion, nearly doubling from $805.9 million last year. After subtracting the commissions that Google paid to other websites in its advertising network, the revenue stood at $1.05 billion, exceeding the Wall Street estimate of $944 million.
Revenue from Google.com and other sites the company owned was $885 million, up 20 per cent in the quarter. Revenue from selling advertising on sites owned by other companies, such as those of America Online, was $ 675 million, up 7 per cent in the quarter. Of that, Google paid $ 530 million of the advertising revenue it received back to the site owners.
The results were released after the stock market closed last 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 per cent, in extended trading.
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.
The introduction of new products, such as instant messaging, and upgrades to existing services, such as mapping, however, helped Google attract more summer traffic than anticipated, the company's executives asserted.
Excluding ad commissions, Google’s third-quarter revenue growth accelerated by 18 per cent from the second quarter. Not even the most bullish analyst believed Google’s sequential revenue increase would be above 10 per cent.
Even as the company diversifies, Google’s online search engine remains the company’s moneymaking centre, shrugging off competition from rivals, Yahoo and Microsoft.
Google handled 45 per cent of US search requests in September, outdistancing 23 per cent for Yahoo and 12 per cent for Microsoft’s MSN, according to research released last 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.
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, hopefully, click on its ads. If San Francisco picks Google’s proposal over 25 others, the company plans to begin building the wireless network immediately.
Google has also teamed up with Comcast Corporation, the largest cable company in the US, to explore buying a minority stake in Time Warner Inc’s AOL. Yahoo and Microsoft are also stalking AOL, an alliance that would hurt Google because AOL is its biggest advertising partner.
Google continues to spend money rapidly. It made $ 293 million in capital expenditure a large amount for an Internet company. Some of that expenses related to Google's need to expand its offices to house its growing workforce, but much of it was invested in Google's network of computers that index Web pages and operate its site.
The company also spent $ 152 million on research and development, up 167 per cent from a year ago. Most of it were salaries of engineers, whom the company has been hiring in droves. The company hired another 806 employees between June and October, expanding its payroll to just under 5,000 workers.
