April 19, 2007 / 8:11 PM / 13 years ago

Google net tops expectations, shares rise

SAN FRANCISCO (Reuters) - Google Inc. (GOOG.O) reported on Thursday a 69 percent rise in quarterly net profit, easily beating expectations as the Web search leader gained market share, sending its stock up 2 percent after-hours.

The logo of Google Inc. is seen outside their headquarters building in Mountain View, California August 18, 2004. Google Inc. reported on Thursday its quarterly net profit rose 69 percent, topping expectations, driven by market share gains in its Web search business, sending its stock up 2.8 percent after-hours. REUTERS/Clay McLachlan

Net income in the first quarter rose to $1.0 billion, or $3.18 per share, from the year-earlier quarter’s $592 million, or $1.95 a share. The result beat the average Wall Street forecast of $2.91 per share, according to Reuters Estimates.

Chief Executive Eric Schmidt sounded exuberant on a conference call following the results, but cautioned that growth typically slows in the middle of each year.

“We are ecstatic about our financial results this past quarter,” Schmidt said. “Our core business is very strong. It is the core business that is driving our success.”

Gross revenue rose 63 percent to $3.66 billion, including traffic acquisition costs of $1.13 billion paid to affiliated Web sites that act as billboards for Google ads. Analysts had expected gross revenue, on average, of $3.57 billion, with estimates ranging from $3.43 billion to $3.70 billion.

“Definitely impressive. They crushed the earnings number despite hiring more aggressively than we thought,” Piper Jaffray analyst Gene Munster said. “The bottom line is it was a great quarter in all metrics.”

Global Crown Capital analyst Martin Pyykkonen said although Google had not been overwhelming quarterly forecasts as in past years, Wall Street was getting used to that. “And the company is showing good gains versus Yahoo YHOO.O,” he added.

Excluding stock-option expenses, profit was $3.68 per share, up from the $2.29 a year before. Wall Street was looking for profit excluding one-time items of $3.31 per share.

Like other Internet services, Google typically sees slower seasonal growth during the second and third quarters, reflecting historical trends that have held true since the earliest days of the Web.

Google shares dipped $4.36 ahead of the report to close at $471.65 in regular-session trading on Nasdaq. After the results, the stock rose to $485 in extended trade.

As Google gets bigger, revenue growth is set to decelerate to about 50 percent this year from 67 percent in 2006. Meanwhile, it is spending heavily on new services and data centers to run them, putting pressure on margins.

“Their gains have extended beyond the point where most people thought was possible,” said Rick Meckler, president of money manager LibertyView Capital Management. “For now it’s still growing at a phenomenally healthy pace.”

The trends of slowing revenue growth have weighed on the stock, which enjoyed spectacular gains following its initial public offering in August 2004. Shares are up just 3.5 percent so far this year.

Google is the world leader in pay-per-click advertising that runs alongside search results on its own sites and on affiliated Web sites that serve as advertising partners.

It derives roughly 99 percent of its revenue from such text ads, although it is moving quickly to expand into online video, graphical, television, radio and print advertising markets.

Google’s surging growth and rapid expansion into new markets has led established rivals to launch a variety of attacks on the Web search leader.

Since last month alone, media conglomerate Viacom VIAb.N filed a $1 billion lawsuit accusing Google and its YouTube video sharing site of tolerating the piracy of copyrighted television programs. New Tribune Co. TRB.N owner Sam Zell has accused Google of having a business model built on theft.

Meanwhile, Google’s $3.1 billion deal to buy DoubleClick, its biggest acquisition to date, drew howls of “antitrust” from rivals in software, telecoms and media after it was announced last week.

Additional reporting by Gina Keating and Sue Zeidler in Los Angeles, Herb Lash in Los Angeles and Tiffany Wu in San Francisco

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