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Originally published Friday, October 20, 2006 at 12:00 AM

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Google's profit nearly doubles; online-ad sales orbit higher

Google's third-quarter profit nearly doubled in the latest demonstration of the Internet search leader's phenomenal financial firepower...

Seattle Times news services

Google's third-quarter profit nearly doubled in the latest demonstration of the Internet search leader's phenomenal financial firepower.

The results, released late Thursday, sent Google shares up $33.81, or 7.9 percent, in after-hours trading. That upturn translated into about $10 billion in additional stockholder wealth.

Before the announcement, it gained $6.75 to close at $426.06 during the regular session.

The performance surpassed analyst estimates by a whopping 20 cents a share and underscored Google's widening advantage over its main rivals, Yahoo! and Microsoft's MSN, as revenues rose 70 percent, powered by a continued surge in online advertising.

Google Chief Executive Eric Schmidt said the financial results were "a testament to the strength of our network of advertisers and partners, as well as our continuing focus on users."

Google said 60 percent of its advertising revenues came from its own sites and 39 percent came from members of its AdSense network — Web sites and other online publishers that display Google ads. The numbers represented a slight shift from the same period a year ago, when Google said 56 percent of its advertising came from its own sites and 43 percent came from its network.

Meanwhile, international revenues formed a greater percent of Google's overall sales, increasing to 44 percent during the recently ended quarter, from 39 percent a year earlier.

Yahoo!, which runs the Internet's second-largest advertising network, has been hurt by slowing revenue growth most of this year — a problem that contributed to a 38 percent drop in its third-quarter profit.

"The difference between Google and the second- and third-place players has become enormous," Global Equities Research analyst Trip Chowdhry said. "This definitely shows that Google is going to own the next generation of the computing environment."

"Google won, Yahoo! lost," said Erick Maronak, who oversees $1.25 billion as chief investment officer at Victory NewBridge Partners, including Google shares. "Things are trending in the right direction for Google."

Schmidt reined in costs and squeezed more money out of each search query, helping drive profit and establishing dominance over Yahoo! and Microsoft's MSN.

Schmidt is seeking to translate that success into online video, purchasing YouTube for $1.65 billion last week.


No matter the industry, few companies have ever matched Google's remarkable run of growth in the eight years since co-founders Larry Page and Sergey Brin launched their quirky business in a Silicon Valley garage, part of a house Google recently bought as a keepsake.

"Business is very, very good here at Google," Schmidt said during a Thursday conference call.

Most companies find it increasingly difficult to sustain their growth pace as they grow larger, but Google so far has been able to defy conventional thinking.

The third quarter, for instance, is supposed to be the most sluggish season for Internet companies, because the summer tends to lure more people away from their computers.

Google instead fared even better in the summer than in the winter, both in total profit and growth rates.

"I am pretty amazed," Schmidt said Thursday. "I did not expect us to do as well as we did."

The company earned $733.4 million, or $2.36 a share, for the three months ended in September. That represented a 92 percent increase from profit of $381.2 million, or $1.32 a share, at the same time last year.

Back in the first quarter, Google's profit rose by a more pedestrian 60 percent from last year.

If not for expenses to cover employee stock compensation, Google said it would have earned $2.62 a share in the third quarter — well above the average estimate of $2.42 a share among analysts polled by Thomson Financial.

Revenue for the period totaled $2.69 billion, a 70 percent increase from $1.58 billion last year.

After subtracting the commissions paid to Google's ad partners, revenue fell to $1.86 billion. That figure also topped analyst estimates by about $50 million.

Chief Financial Officer George Reyes said Google would continue to spend its growing cash hoard, now up to $10.4 billion, on prudent investments in technology and real estate.

He said Google spent $492 million on data centers during the last quarter.

In addition, Google added more than 1,400 new employees, for a total of 9,378.

Compiled from The Associated Press, San Jose Mercury News and Bloomberg News

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