Google Tops Expectations for Quarter
The investors who have sent Google Inc.’s stock soaring since its initial public offering have been betting the company would continue its torrid growth. It turns out they’ve been very conservative.
Google on Thursday said its sales and profit more than doubled in the third quarter. The strong results, released in the first earnings report to follow the company’s August IPO, put to rest any concerns about a slowdown in Google’s core business, selling online ads targeted to Internet search results.
Net income for the Mountain View, Calif., company came in at $52 million, or 19 cents a share, compared with $20 million, or 8 cents, during the same period last year, when Google was still toiling away in financial secrecy.
Excluding certain items, Google earned 70 cents a share. The company had offered Wall Street no guidance on its performance, and analysts’ expectations for the third quarter were all over the map. But the results blew past even the most bullish forecasts.
“Those guys cranked,” said Mark Mahaney, an analyst with American Technology Research.
Revenue rose to $806 million from $394 million. About half of Google’s revenue came from ads on Google.com and half came from placing ads on partners’ websites. Excluding the “traffic acquisition costs” it pays to those partners, the company had sales of $503 million, well above the Wall Street consensus of $456 million.
Google took one-time charges in the quarter to account for a $201-million legal settlement with rival Yahoo Inc. over patent and stock-warrant disputes. And unlike most other technology companies, Google expenses the cost of stock options and grants to employees. Excluding those items, Google earned $193 million, or 70 cents a share, far outpacing the Wall Street consensus of 56 cents.
After rising $8.89 to $149.38 in regular Nasdaq trading, Google shares jumped an additional 8% to $161.30 in extended trading after the results were released.
Once again, investors will have to predict Google’s future performance without much help from the company. As promised in Google’s highly ideological IPO prospectus, Chief Executive Eric Schmidt began a conference call with analysts by declining to issue financial guidance. He said the company didn’t want to get bogged down by pressure to meet quarterly expectations.
Analysts tried anyway to tease out details that would offer clues into the company’s finances. They asked about specific advertising metrics and the plans for products such as the Froogle online shopping site and the Gmail e-mail service. They even pressed Google executives to explain why their strategy was looking more and more like those of Yahoo, Microsoft Corp.’s MSN and other Internet portals.
Mostly, Google executives wouldn’t bite.
“It was a little frustrating,” said John Tinker, an analyst with ThinkEquity Research. “You can’t get your hands around the numbers and what’s driving it.... Provided you keep hitting numbers, people will live with it.”
Google executives sought to downplay concerns that the company was too reliant on targeted online ads, which represent 98% of its revenue.
“The amount of demand that exists for the kind of advertising we do is quite large and in many ways unmet,” Schmidt said.
Chief Financial Officer George Reyes did allow that Google’s 15% revenue growth from the second quarter to the third was much higher than investors should typically expect.
The earnings report comes on the heels of a steep run-up in Google’s stock price.
The company employed an unusual “Dutch auction” method to set the market price for its shares and avoid the big swings that often follow IPOs.
When Google originally proposed that its shares were worth between $108 and $135, bankers on Wall Street scoffed at the audacity of the triple-digit offering price. Google was forced to cut its price to $85 and reduce the number of shares being sold to outside investors.
Since the August IPO, Google’s stock price has climbed nearly 90% -- well past the top of the original proposed range. Analysts said that the third-quarter performance justified the stock price.
“There’s no question they delivered,” said Scott Kessler, Internet analyst with Standard & Poor’s Corp. “People look at those numbers and go, ‘Wow.’ ”
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October surprise Earnings estimates for GoogleÕs first quarterly report were all too low.
AnalystsÕ estimates of GoogleÕs earnings per sharare
GoogleÕs actual earnings: $0.70 J.P. Morgan: 0.52 Prudential Equity: 0.53 Credit Suisse First Boston: 0.54 W.R. Hambrecht: 0.55 Lehman Bros., Jefferies & Co..: 0.56 Susquehanna: 0.527 Caris & Co., Pacific Crest, Schwab Soundview: 0.58 American Technology: 0.59 ThinkEquity Partners: 0.61
Source: Bloomberg News
