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Google`s Q1 profit climbs 30%
Friday, April 18, 2008
Google Inc. tweaked its online advertising formula and
accelerated its growth outside the United States to produce a
first-quarter profit that surpassed analysts' predictions,
alleviating some of the economic worries battering its stock
this year.
The news, released after the stock market closed Thursday,
lifted Google's recently drooping shares by more than USD 76,
or 17 percent.
"This is mostly a relief rally," said Stanford Group analyst
Clayton Moran. "People are relieved that things aren't as bad
as they thought."
Google's global appeal propelled the Mountain View-based
company as more than half its revenue came from outside the
United States for the first time in its 9 1/2-year history.
The Internet search leader said it earned USD 1.31 billion, or
USD 4.12 per share, during the first three months of the year.
That represented a 30 percent increase from net income of USD
1 billion, or USD 3.18 per share, in the first quarter of
2007.
If not for expenses to cover stock given its employees, Google
said it would have made USD 4.84 per share.
That figure outstripped the average projection of USD 4.52 per
share among analysts surveyed by Thomson Financial.
First-quarter revenue totaled USD 5.19 billion, up 42 percent
from USD 3.66 billion a year ago.
After subtracting the commissions paid to the company's
advertising partners, Google's revenue stood at USD 3.7
billion — about USD 100 million above analyst estimates.
"It's clear we are well positioned for 2008 and beyond,
regardless of the business environment we are surrounded by,"
Google Chief Executive Eric Schmidt told analysts during a
Thursday conference call.
Some analysts and investors, though, remain cautious because
so much of Google's ad revenue comes from small and mid-sized
businesses, which are more apt to curb their spending if the
economy worsens.
"The fact Google hasn't seen a slowdown yet just means that
there might be another shoe to drop," said Darren Chervitz,
co-manager and research director for the Jacob Internet Fund,
which has sold about half of its Google holdings in recent
months.
Google's first-quarter showing could be a precursor to a
strong earnings report from Yahoo Inc. next week.
If it can meet or exceed analyst expectations like Google did,
Yahoo will be in a better position to ward off Microsoft
Corp.'s unsolicited takeover bid or at least argue for its
suitor to raise the cash-and-stock offer from its current
value of about USD 42 billion.
Google is trying to help Sunnyvale-based Yahoo thwart
Microsoft by helping Yahoo place ads on its Web site as part
of a test scheduled to conclude next week. Schmidt declined to
answer a question about the chances of Google signing a
long-term advertising contract with Yahoo — a deal that would
likely face intense scrutiny from antitrust regulators.
"It's nice to be working with Yahoo," Schmidt said. "We like
them very much."
Investors had serious doubts about Google's short-term
prospects before Thursday.
The financial targets that guide Wall Street's expectations
had fallen during the past two months as Web surfing data
convinced analysts that Google's advertising links aren't
attracting as much consumer interest amid mounting evidence
the US economy had tumbled into a recession. Google makes
money from the links only when Web surfers click on them.
But management has said the slowdown in ad clicking largely
reflected changes that purposefully reduced the volume of
commercial in an effort to deliver more compelling messages
that lead to purchases.
By making this switch, Google bet that advertisers would be
willing to pay more for each ad link and ultimately generate
more revenue from fewer clicks.
That appears to be what happened in the first quarter when the
company said the number of paid clicks from last year rose by
20 percent, less than half the rate of the first-quarter
revenue increase.
Google's performance indicates the Internet's advertising
market — expected to generate USD 44 billion in worldwide
spending this year — remains robust, especially outside the
United States.
International markets accounted for 51 percent of Google's
revenue in an expansion that was accentuated by the weak
dollar. Google said its revenue would have been about USD 202
million lower if the dollar's value hadn't declined so
dramatically from the first quarter of 2007.
As it was, Google's international revenue surged by about 50
percent from last year's first quarter compared with about 30
percent in the United States.
An unusually low tax rate of 24 percent also bolstered
Google's earnings. The company's quarterly tax rate ranged
from 25 percent to 27 percent last year. Management attributed
this year's lower rate primarily to its widening exposure to
markets outside the United States.
The results restored some of the USD 75 billion in shareholder
wealth that had evaporated with the 35 percent drop in
Google's stock price this year.
Google shares declined USD 5.49 during regular trading to
finish at USD 449.54 before the company released its pleasant
surprise.
This was the 12th quarter out of the 15 since Google went
public that its performance has topped analyst expectations —
a trend that had helped propel its stock to nearly USD 750
before the recent plunge.
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