October 20, 2005 1:55 PM PDT

Google shares soar on hearty revenue report

Internet search engine giant Google saw its third-quarter revenue nearly double from a year ago and profit rise in what usually is a slow Web surfing period.

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Schmidt discusses the importance of Internet access to the company's business.
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Google co-founder Larry Page talking about Google's bid to build a wi-fi system for City of San Francisco.
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The Internet bellwether on Thursday posted a net income of $381.2 million, or $1.32 a share, on record revenue of $1.58 billion, up 96 percent from a year earlier on strong global advertising.

Investors responded enthusiastically to the news, driving the company's shares up 12 percent to $340.34 in Friday morning trading.

A year ago, the company posted earnings of 19 cents a share and revenue of $805.9 million, Google said.

Excluding $530 million in traffic acquisition costs, the portion of revenue shared with partners, Google posted revenue of $1.05 billion.

"We had another strong record-breaking quarter in terms of both revenues and profits. We're very, very pleased," Google Chief Executive Eric Schmidt said in a conference call with analysts. "This is traditionally a slow season for Internet properties so this momentum shows that, at least from my perspective, we are effectively connecting with our users and our customers."

The bullish earnings report prompted several brokerages to increase their target prices for Google. Needham boosted its target to $370 from $300 a share, while Bank of America Securities increased its target to $360 from $280 a share.

First Albany and Lehman Brothers went even further, upping their Google price target to $450 a share.

Google's earnings would have been $1.51 per share if not for charges related to employee stock options and research and development. That handily beat analyst expectations, on average, of $1.36 per share and revenue of $944.4 million, excluding traffic acquisition costs.

David Edwards, an analyst at American Technology Research, said Google's results exceeded his estimates.

"They made a lot of money," he said. "Clearly they showed a lot of strength (selling ads) on their own core sites. Google site revenue was up 20 percent sequentially."

Google said it generated $885 million, or 56 percent of total revenue, from ads on its own Web sites, compared with $675 million, or 43 percent of total revenue, that was generated from partner sites through its AdSense program.

Nearly all of Google's revenue comes from advertisements that appear on search result pages and on partner sites. The Mountain View, Calif.-based company accounts for about 45 percent of all U.S. Internet searches, compared with 23 percent for Yahoo and 12 percent for Microsoft's MSN, according to Nielsen/NetRatings.

Google declined to give forward guidance, although Chief Financial Officer George Reyes said the company has forecast that capital expenditures for 2005 will be more than $800 million. The company has been spending money on acquiring additional land, office space, production servers and networking equipment, he said, adding that Google hired about 800 people in the third quarter and has nearly 5,000 full-time employees.

Google executives, typically very secretive about strategy, declined to discuss planned products or services, but mentioned several times how important Internet access is to their business, a possible indication of their future direction. Observers have tried to piece together reports of Google buying up unused fiber optic and its investment in a provider of broadband over power-line technology, among other moves.

"Internet access is becoming so ubiquitous, so practical; our lives are continuing to move online and change the way we live and do business," Schmidt said. "We believe that the most direct way to access the world's information is, and will continue to be, through Google."

Google's results were "driven by a business model for instant and seamless access to the world's information," he added.

In response to a question about Google's motivations for bidding to offer free wireless Internet access to the city of San Francisco, company co-founder Larry Page said: "We are excited about expanding Internet access in general. We think it's really good for our business...So the San Francisco Wi-Fi is an experiment to see how we can provide new services (and) localized software in environments where people have good access to the Internet."

Google has beaten analyst estimates in the three quarters since going public last year. Meanwhile, its share price has skyrocketed, rising nearly 60 percent since the beginning of the year and reaching a high of $321.28 on Oct. 4.

The company raised more than $4 billion in a September stock sale, bringing its cash total to about $7 billion.

On Tuesday, Google's chief rival, Yahoo, posted higher third-quarter profit and revenue from a year ago and beat analyst expectations.

Reuters contributed to this report.

8 comments

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Political Maps
Google better not anger the countries where it is trying to do more business. India and China are pretty upset with Google over incorrect political maps of the countries. If they continue to anger people this way, their climb up may be short lived.
Posted by satish rao (9 comments )
Reply Link Flag
Yep.
India and China are the most populated countries on earth, and with Internet access spreading so quickly into those countries, in the future there may be more Internet users in those countries then in North America, so its smart not to anger those countries because of the potential income to Google.
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<a class="jive-link-external" href="http://www.Remove-All-Spyware.com/" target="_newWindow">http://www.Remove-All-Spyware.com/</a>
Posted by Roman12 (214 comments )
Link Flag
Political Maps
Google better not anger the countries where it is trying to do more business. India and China are pretty upset with Google over incorrect political maps of the countries. If they continue to anger people this way, their climb up may be short lived.
Posted by satish rao (9 comments )
Reply Link Flag
Yep.
India and China are the most populated countries on earth, and with Internet access spreading so quickly into those countries, in the future there may be more Internet users in those countries then in North America, so its smart not to anger those countries because of the potential income to Google.
__________________________________
R.K.
<a class="jive-link-external" href="http://www.Remove-All-Spyware.com/" target="_newWindow">http://www.Remove-All-Spyware.com/</a>
Posted by Roman12 (214 comments )
Link Flag
possibly
I'm sure Google will take parts of their mapping service off.. especially of political centers.. I'm sure Google hasnt mapped the President's private places. So why should they map other nations like that?
Posted by (75 comments )
Reply Link Flag
possibly
I'm sure Google will take parts of their mapping service off.. especially of political centers.. I'm sure Google hasnt mapped the President's private places. So why should they map other nations like that?
Posted by (75 comments )
Reply Link Flag
Tenuous business model?
Google's benefitting from a captive audience in which to push adverts on to - no wonder advertisers love it.

Microsoft is missing a trick here. With 94% of the desktop OS market they should be pushing an advert enabled version of Windows that is cost free. Where would Google's advertising dollars go then?
Posted by mylesJ (5 comments )
Reply Link Flag
Tenuous business model?
Google's benefitting from a captive audience in which to push adverts on to - no wonder advertisers love it.

Microsoft is missing a trick here. With 94% of the desktop OS market they should be pushing an advert enabled version of Windows that is cost free. Where would Google's advertising dollars go then?
Posted by mylesJ (5 comments )
Reply Link Flag
 

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