Google Dazzles Wall Street: 60 PERCENT FIRST-QUARTER PROFIT INCREASE DRIVES SHARES UP 8 PERCENT AFTER HOURS
Posted on: Friday, 21 April 2006, 09:00 CDT
By Elise Ackerman, San Jose Mercury News, Calif.
Apr. 21--Google got its groove back Thursday.
The Mountain View search giant posted a 79 percent increase in revenue and a 60 percent increase in profit for the first quarter on Thursday, stunning Wall Street and quelling fears that its advertising business had begun to slow.
Investors who had sold Google's shares in the wake of a disappointing performance last quarter piled back into the stock, sending the share price soaring 8 percent in after-hours trading.
During the quarter ended March 31, Google's shares fell from a high of $475.11 in January to a low of $338.77 in March. On Tuesday the stock closed at $415.
The volatility was driven in part by Chief Financial Officer George Reyes' remark in late February that Google was beginning to experience the effect of the law of large numbers -- the bigger a company is, the harder it is to sustain high growth rates.
When asked in an interview about Reyes' remark, Chief Executive Officer Eric Schmidt said -- somewhat obliquely -- "sometimes the law of large numbers is applicable in other contexts."
In total, revenue for the quarter rose to $2.25 billion from $1.26 billion during the same period a year ago. Profit increased to $592.3 million, or $1.95 per share, from $369.2 million or $1.29 per share.
Excluding the cost of employee stock grants and the settlement of a lawsuit, Google said it made $2.29 per share -- far more than the $1.97 per share expected by analysts surveyed by Thomson Financial.
In a conference call with analysts, Schmidt said Google's audience was "the biggest in the world." Schmidt said internal figures showed Google gaining market share in key markets such as the United States, the United Kingdom and India, and he described the market in China as "up for grabs."
According to Nielsen//NetRatings, a market research firm, 49 percent of U.S. online searches were at Google's sites in March, 22.5 percent at Yahoo and 10.9 percent at MSN.
The total number of online searches conducted in the United States in March increased 15 percent from March 2005 to 6.4 billion, Nielsen//NetRatings found.
Schmidt said international ad sales contributed 42 percent of all revenue. The company further described ad sales as being divided roughly 60/40 between Google-owned sites and Web sites that had agreed to display Google's ads.
"The quarter was phenomenal," said Derek Brown, an analyst with Pacific Growth Equities. "It was another in a long line of outstanding quarters by a company that really in almost every way is separated from its Internet peers."
But Brown, who owns Google stock, said he wanted more detail about how the company is achieving its growth.
Since its initial public offering in August 2004, Google has frustrated Wall Street by refusing to provide financial projections and declining to divulge details about its business. On Thursday, Schmidt and several other executives attempted to improve communication by participating in a lengthy question-and-answer session.
The executives spoke about the opportunities they see for delivering search results and advertising on mobile devices as well as the potential for selling more local advertising.
But they offered few specifics.
"There is not a lot of meat to hang on the bones," Brown said.
Google said it is going to continue to invest heavily in its computer network, which has been described as one of the largest in the world, and to hire new employees. Company executives did not provide any targets.
During the quarter, Google spent $345 million purchasing property and equipment, and hired 1,110 new full-time employees for a total of 6,790 full-time employees.
Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774.
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Copyright (c) 2006, San Jose Mercury News, Calif.
Distributed by Knight Ridder/Tribune Business News.
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NASDAQ-NMS:GOOG, NASDAQ-NMS:NTRT, NASDAQ-NMS:YHOO, Unknown:PGQ,
Source: San Jose Mercury News
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