"Google Profit Soars Again, Beyond High Expectations"
"Google continued its rapid growth in the second quarter, posting a profit of $343 million, or $1.19 per share, more than a fourfold increase from the same period a year ago. Revenues doubled to $1.38 billion from the quarter a year earlier.
Earnings per share, adjusted for certain stock-based compensation, reached $1.37, far exceeding analysts' expectations of $1.21.
In an interview, Eric Schmidt, Google's chief executive, attributed Google's strong performance to several factors, including the growth of users, especially overseas. Recent improvements in Google's technology have helped it aim ads better to particular Web search pages and to increase how often people click on the ads.
''Our advertisers are getting better results, and so the prices they pay us are better,'' Mr. Schmidt said.
Despite the strong results, Google's shares fell sharply when the report was released after markets closed. Google's shares closed yesterday at $313.94, but declined 6 percent in after-hours trading to $294.26.
Jordan Rohan, an analyst with RBC Capital Markets, who does not own any Google shares, said that this drop has to be seen as small compared to the rapid appreciation of Google stock in the last few months. The stock is up 100 points in the last quarter, he noted.
Analysts prefer looking at Google's revenue after deducting the payments it makes to companies, like America Online and Ask Jeeves, which place ads Google sells on their sites. Net of these payments, Google's revenue was $890 million, well above the $842 million analysts had expected.
The company ended the quarter with $2.9 billion in cash and marketable securities, up $500 million, mainly because of its business operations.
Google said it would stick to its policy of not providing guidance about its future financial results. But in a conference call with investors, Mr. Schmidt and George Reyes, the company's chief financial officer, strongly suggested that analysts be conservative in their estimates for Google's results in the third quarter.
Last year, they said, the company had an unusually strong third quarter, perhaps because of the publicity generated by its initial public offering. Moreover, summer is often especially slow for advertising, particularly in Europe, where Google is growing especially quickly.
''As you contemplate your third-quarter estimates, I encourage you to factor in what you know about both domestic and European seasonality,'' Mr. Reyes said.
Google's revenue from the sites it runs, mainly the Google.com search engine, grew faster than the network of sites owned by others that use Google's ads. Revenue from Google sites was $737 million, up 115 percent. Revenue from the network, was $630 million, up 82 percent.
Mr. Rohan, the analyst, pointed out that Google's revenue was growing twice as fast as Yahoo, its closest rival, and that it was taking market share from nearly everyone in the search market.
''Microsoft is not gaining share, despite hundreds of millions spent on its search effort,'' he added. ''So it's clear to me that the Google brand and the Google search experience is driving increased usage.''
Google showed that its profit margins, already high, were increasing. Is operating profit represented 34 percent of its revenue in the quarter, up from 24 percent a year ago. But that margin fell from 35 percent in the first quarter of the year. Google attributed this to rapid hiring, especially of engineers. The company increased the number of full-time employees by 701 to 4,183 in the second three months of the year.
''You should not expect us to link our spending to revenue growth patterns,'' Mr. Reyes said. ''Revenue growth is seasonal. Expense growth, with many new hires coming on in the summer, is not seasonal.''
Anthony Noto, an analyst with Goldman Sachs, which has done investment banking business for Google in the last year, said that he had expected Google's high profit margins to decline, but that they were not falling as fast as he predicted, largely because the company's revenue was growing at an accelerating pace.
In the interview, Mr. Schmidt said the most significant development in the quarter was Google Earth, a software program that lets people zoom through three-dimensional maps as if they were in a low-flying helicopter. Even though the product does not appear to generate much revenue, he suggested it had been worthwhile from a marketing perspective.
''When your name keeps being mentioned at cocktail parties and you are not going to jail, it's good,'' Mr. Schmidt said.
Mr. Rohan said this approach seems to work for Google, adding that while Yahoo spends 28 percent of its net revenue on sales and marketing, Google spent 11 percent.
''The whiz-bang nature of their products, the wow factor,'' he said, ''helps the company spend less on direct promotion.''"