Google defies expectations; profit soars
Search king Google Inc. found another billion dollars in quarterly profit Thursday.
Advertisers continued to flock to the leading search engine, boosting Google’s first-quarter earnings 69% to $1 billion -- the second time it has hit the 10-figure mark.
The company blew past Wall Street’s already enthusiastic expectations, defying analyst predictions that slowing growth in the search advertising market would crimp Google’s expansion. Its revenue jumped 63% to $3.7 billion.
Excluding stock-based compensation and other one-time items, Google earned $3.68 a share, compared with analysts’ average estimate of $3.30. Rival Yahoo Inc. this week missed Wall Street’s earnings expectations.
“True leadership and scale is translating into new opportunities,” said Jordan Rohan, an analyst with RBC Capital Markets. “Website owners need to respond to consumer demands. Consumers prefer Google. So, Google’s the partner of choice.”
Google shares fell $4.36 to $471.65 before the earnings report, then jumped 3% to $486.80 in after-hours trading.
Google Chief Executive Eric Schmidt seemed to delight in defying those on Wall Street who were just waiting for the Internet darling to stumble.
“We are ecstatic about our financial results this past quarter,” Schmidt said in a call Thursday with analysts. “Our core business at Google remains very strong and continues to grow.”
Google is increasingly defining its core business as not just search advertising but advertising of all types.
The Mountain View, Calif.-based company recently announced deals to broker radio ads for Clear Channel Radio and television ads for satellite TV operator EchoStar Communications Corp.
“That’s fundamentally our vision, that we can make advertising better for everyone,” said Sergey Brin, Google’s co-founder and president.
But analysts say it’s Google’s focus on search-related advertising that continues to pay dividends.
Google spends about 70% of its resources improving the relevance of its search results and the user experience by adding handy features, such as maps next to a search for a local pizza joint or an easier way to complete an online purchase. It’s also made technical improvements that lead to more online sales by giving advertisers the tools to refine their promotions.
“That’s what really moves the needle,” said Rob Sanderson, an analyst with American Technology Research Inc.
This is precisely where Yahoo is still faltering. Its new and much ballyhooed search advertising system, called Panama, has failed to boost the Sunnyvale, Calif.-based company’s fortunes, as its first-quarter profit was off 11%. Yahoo executives say the system is winning over advertisers and remains on track to improve the company’s profitability in the second half of the year.
“Their management credibility hit an all-time low with investors,” Sanderson said.
Google benefits from serving as the launching pad for the majority of Internet searches. A newly released report from research firm Hitwise said Google accounted for 64% of all U.S. searches for the four weeks ended March 31. Its closest competitor, Yahoo, grabbed just 21.2%.
CEO Schmidt said Google’s planned acquisition of display advertising company DoubleClick Inc. for $3.1 billion would expand the company’s advertising business to better serve online banners and other so-called display ads.
But acknowledging the criticism DoubleClick has faced for tracking Web surfers’ behavior, Schmidt also pledged to improve Google’s practices “with respect to people’s privacy.”
Schmidt also touted the growth of online video community YouTube, which Google acquired in November for $1.65 billion. He said Google was nearing completion of a tool to automate the removal of videos that have been posted without the owner’s permission.
The unauthorized posting of copyrighted videos is the basis of a $1-billion lawsuit brought by Viacom Inc. against Google.
dawn.chmielewski@
latimes.com
