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Internet Companies Expected to Report Solid Profit Growth

Posted on: Wednesday, 18 January 2006, 18:01 CST

By RIVA RICHMOND Dow Jones

NEW YORK -- U.S. Internet giants are expected to report strong revenue and profit growth for the final quarter of 2005, driven by the ongoing shift in advertising and retail dollars to the Web and goosed by the holiday rush.

Both online advertising spending and e-commerce sales continue to leap ahead at double-digit percentage rates, significantly surpassing growth in the offline world.

The result, analysts say, should be strong growth for Internet bellwethers Google Inc., Yahoo Inc., eBay Inc. and Amazon.com Inc.

Goldman's Anthony Noto said in a note to investors that Google's net revenue could be anywhere between 20 percent and 30 percent higher than in the September quarter, versus his official 20 percent forecast.

Anticipation of strong results has driven Google's stock to new highs. It reached an all-time high of $475.11 on Wednesday, marking a 175 percent rise from its 52-week low of $172.57, set March 14.

The Web search giant's remarkable growth trajectory has proven tough to predict, particularly without the aid of company forecasts (which Google famously declines to provide).

The company's ascent has been driven not only by rapid adoption of search marketing but also by improving revenue per search and overseas expansion.

Its expected efforts to step up profits from new products, particularly listing service Google Base, should add another tricky element to the mix in the coming year.

Yahoo, which on Tuesday kicks off the reporting season for Internet companies, also is expected to report strong results.

Yahoo's search business isn't growing as fast as Google's; Noto puts its sequential growth rate at 13 percent, compared with 20 percent to 30 percent for Google. Yahoo isn't seeing Google's market- share gains, and it isn't as good at squeezing money out of search queries as its rival.

But Yahoo is expected to report some improvement in search revenue, its product innovations and relationships with Internet- access providers are expected to lift visitor numbers and subscription fees, and it should be an outsized beneficiary of growth in display, or "branded," ads.

E-commerce companies , such as eBay and Amazon.com, also are expected to show strong growth, although analysts are concerned stiffening competition could pressure margins for some players.

E-commerce sales have been expanding at a rate of 25 percent to 30 percent per year, according to Piper Jaffray. And holiday sales rose some 30 percent from last year to about $30 billion, according to a Goldman Sachs survey. But competition pushed e-tailers to spend heavily on marketing, and they're feeling pressure to step up investment in their sites.

Source: Columbian

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