| SAN FRANCISCO
SAN FRANCISCO Internet leader Google Inc
(GOOG.O) said on Thursday it saw no impact from a weakening
U.S. economy as it posted a better-than-expected quarterly
profit and waved off fears of an online advertising slump.
Google's hard-hit shares surged 18 percent above $500 -- a
level last seen in February -- as the company showed signs of
better cost control and earned more revenue abroad than at home
for the first time, partly because of the weak dollar.
"It's clear to us that we're well positioned for 2008 and
beyond, regardless of the business environment that we find
ourselves surrounded by," Chairman and Chief Executive Eric
Schmidt told investors on a conference call.
Google, one of the hottest technology stocks of 2007, had
seen its shares erase last year's 50 percent gain since the
start of 2008 on investor concerns that the online ad industry
was maturing and vulnerable to a U.S. economic downturn.
"It's a good time to be a Google bull," said Colin Gillis,
an analyst with Canaccord Adams. "The boys delivered."
But Cowen & Co analyst Jim Friedland said the surge in the
shares was not based on dramatic improvements in Google's
growth outlook, simply on relief that the economy was not
dragging down the company's results as had been feared.
"It was sort of an uneventful quarter other than taking a
major concern -- the economy -- off the table," he said.
First-quarter net income rose to $1.31 billion, or $4.12
per diluted share, from $1 billion, or $3.18 per share, a year
earlier. Excluding one-time items and stock option expenses,
profit was $4.84 per share, comfortably ahead of the average
Wall Street forecast of $4.53 on Reuters Estimates.
Gross revenue rose 42 percent to $5.19 billion, just ahead
of Wall Street targets. By contrast, Google's revenue grew at a
63 percent rate in the same quarter a year ago.
International revenue accounted for 51 percent of the
total, surpassing U.S. revenue for the first time and powering
the company's results. Translating overseas sales into a weaker
dollar helped boost Google revenue by nearly 4 percent.
Google's performance may strengthen Yahoo Inc YHOO.O in
its efforts to wring a higher takeover offer from would-be
buyer Microsoft Corp (MSFT.O).
"This signals that the online advertising market is still
healthy, which should help Yahoo get a better price for its
company if it does decide to sell to Microsoft," said Peter
Dunay, chief investment strategist at broker-dealer Meridian
BETTER THAN FEARED
Google has been the subject of intense Wall Street debate
over whether recent comScore data showing Google having trouble
converting Web searchers into ad viewers is an indication its
best days of growth are behind it.
Paid clicks, a measure of how often users of its Web search
click on ads tied to search results, rose 4 percent from the
fourth quarter of 2007 and grew 20 percent from a year ago.
"Clearly the area that Google was trying to focus on --
having more relevant searches -- is working," Global Crown
Capital analyst Martin Pyykkonen said.
Measured on clicks, Google's performance was better than
feared, but a far cry from a year ago, when the number of
Google users clicking away grew 52 percent on the year before.
Some of the slowing growth is self-inflicted. Since August,
officials say Google has been axing low-performing ads in order
to encourage clicks on more meaningful ads at higher rates.
Google's traffic acquisition costs -- the cut of
advertising revenue paid out to affiliated sites that run its
ads -- amounted to 29 percent of ad revenue in the first
quarter. A year ago, the proportion was 31 percent.
Google closed a $3.4 billion acquisition of ad technology
company DoubleClick in March. The move strengthened its
position against Yahoo and Microsoft in the market for online
brand advertising preferred by corporate marketers.
Co-founder Sergey Brin said in a phone interview that the
company aimed this quarter to link up DoubleClick's system for
buying and selling online display ads with Google's own AdSense
system for buying and selling other types of online ads.
"We really feel we're in a position to become the world's
largest display ads provider," added Jonathan Rosenberg,
Google's senior vice president for product management.
Google shares shot up to $529.38 in extended trading from
its close of $449.54 on the Nasdaq earlier on Thursday.
Helping that rebound, Schmidt said Google was confident its
targeted advertising could withstand most economic scenarios.
"On the macro side we've looked at this really carefully
and we do not see an impact as of this time," Schmidt told
analysts and investors on the quarterly conference call.
"Our conclusion is that we're well positioned, should
economics change, to continue to do well because our model is
so targeted and targeted advertising does well in pretty much
most scenarios, we think."
(Additional reporting by Gina Keating and Sue Zeidler in
Los Angeles, Doris Frankel in Chicago, and Calvin Mankowski and
Michele Gershberg in New York; Editing by Braden Reddall)