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SAN FRANCISCO (Reuters) - Google Inc's results trounced Wall Street expectations with the help of strong advertising sales and deft cost controls, driving its shares roughly 6 percent higher.
The Internet search and advertising leader, benefiting from a growing online ad market and sharper research focus, increased its profit by 26 percent and revenue by 37 percent in the third quarter.
A darkening economic outlook -- particularly in Europe, had stoked worries about advertising growth. But Google's revenue and paid-clicks performance boded well for the fourth quarter, analysts said.
"These guys continue to show that they are not immune to the market but that they are going to perform better than traditional players," said Macquarie Research analyst Ben Schachter.
Robust demand from advertisers in emerging markets, such as in Asia, as well as strength in its mobile and display advertising businesses, juiced Google's financial results during the third quarter, he said.
"They are beginning to see some softness in Western Europe but it's being more than made up for by the broader distribution of their products in mobile and the fact that emerging markets are becoming more and more important," said Schachter.
Shares of Google rose to $594.01 in extended trade after closing 1.91 percent higher on Nasdaq. The stock is off nearly 8 percent from its 52-week high of $642.96 on concerns about the growing regulatory scrutiny facing the company as well as fears that spending would spiral out of control as Google steps up competition with Apple Inc and Facebook.
"The real interesting thing here is the expenses that weren't as high as the Street was anticipating. R&D was less than we were expecting," said UBS analyst Brian Pitz. "This is the fourth quarter in a row the company has accelerated their revenue on top line."
Chief Executive Larry Page, who assumed the top job in April, told analysts on a conference call that he was whittling down Google's sprawling portfolio of projects and diverting resources to businesses with higher potential returns.
"We have to make tough decisions about what to focus on, or we end up doing things that don't have the impact that we strive for," Page said. "Since we last spoke we've begun the process of shutting over 20 different products.
The company is plowing money into its fast-growing mobile business which competes with iPhone-maker Apple. Google's Android mobile software, already the world's most-used smartphone platform, is gaining momentum. It powers 190 million devices, up from 135 million in mid-July.
Page said the revenue run rate for Google's mobile business is more than $2.5 billion, a significant leap from $1 billion just a year ago.
In August, Google announced plans to acquire Motorola Mobility Holdings for $12.5 billion. The deal, which Google expects to close this year or early 2012, will give it one of the wireless industry's largest patent libraries, as well as hardware manufacturing operations that will allow Google to develop its own line of smartphones.
But analysts and investors worry that Google is entering a low-margin business in which it has no experience. A move to build its own phones could also jeopardize support for Google's free Android mobile software from other phone manufacturers such as Samsung Electronics and HTC Corp.
Google executives on Thursday's conference call did not address plans for Motorola, which Google has said it plans to run as a separate business. But Page took a jab at Microsoft Corp for waging a legal battle against companies that sell Android devices.
"They continue resorting to legal measures to hassle their own customers," Page said, referring to recent licensing deals between Microsoft and companies such as Samsung, HTC and Acer, many of which are also Microsoft customers.
"We see Android going gangbusters and we don't see anything that's going to stop that," he added.
Google said its net income in the three months ended September 30 grew to $2.73 billion from $2.17 billion in the year-ago period.
Excluding certain items, Google said it earned $9.72 per share in the third quarter. Analysts polled by Thomson Reuters I/B/E/S were expecting adjusted EPS of $8.74.
"A lot of people were expecting spending to be out of control, but they had good control," said Herman Leung, an analyst with Susquehanna Financial Group.
Google's recently launched social networking service, Google+, is also on investor radars. Its effort to challenge Facebook's dominance in the red-hot social networking market got off to a fast start in June, collecting 10 million users in the first two weeks.
On Thursday, it said it had signed up more than 40 million users for its recently launched Google+ social network. Page also said that more than 3.4 billion photos have been uploaded to Google+ by users of the service.
Its third-quarter net revenue, which excludes fees that the company shares with partner websites, increased 37 percent year-on-year to $7.51 billion. Analysts were looking for $7.22 billion in net revenue.
Reporting by Alexei Oreskovic and Edwin Chan; Editing by Richard Chang