Google trumps street targets; shares surge

By Reuters
Posted Oct. 14, 2010 at 4:39 p.m.

Google Inc. blew past Wall Street’s quarterly profit and revenue expectations as a 25 percent revenue surge offset rising expenses, sending its shares up 9 percent.

Analysts pointed to a 16-percent jump in “paid clicks” on Google’s search advertisements, while earnings handily surpassed expectations despite hiring at a near-record pace and a one-third jump in operating costs.

Investors have feared that Google, seeking new sources of growth, is spending recklessly on initiatives such as its Android mobile phone software, acquisitions, renewable energy projects and even automated cars, with uncertain returns. At the same time, social networking giant Facebook poses a growing threat to Google’s online advertising business.

“Looks like business is solid across the board. The biggest concern for investors was expenses. Given the EPS number, it looks like margins have to be better than what the Street was expecting,” said UBS analyst Brian Pitz.

The world’s largest Internet search engine on Thursday posted a third-quarter net income of $2.17 billion or $7.64 a share, excluding items, surpassing Wall Street’s average estimate of $6.69 a share, according to Thomson Reuters I/B/E/S.

Net revenue, which excludes fees that Google pays to partner websites, came to $5.48 billion, versus expectations for $5.27 billion. Net revenue in the 2009 third quarter was $4.38 billion.


Google said paid clicks on its search advertisements increased 16 percent year-over-year, and 4 percent from the second quarter.

It added more than 1,500 employees to its payroll in the third quarter — which some analysts said was a record pace for the company — and its operating expenses totaled $2.19 billion, up from $1.64 billion in the year-ago quarter.

CFO Patrick Pichette said the Internet industry was waging a “war for talent,” adding that its YouTube online video site was now “monetizing” over 2 billion views a week, a rise of 50 percent from a year earlier.

Google’s 9-percent rise in extended trading, to $590, would be the biggest single gain since November 2008. The stock had closed 0.44 percent lower at $540.93 on Nasdaq before the earnings announcement.

“Strong quarter, revenues are a nice beat, strength in the core search business as paid clicks is up 16 percent year-over-year,” said Benchmark Co analyst Clay Moran. “Bottom line big beat, but partially due to higher interest income and a lower tax rate.”

“The after-hours reaction may reflect excess pessimism heading into the quarter. But if not, it may be a bit of an aggressive reaction due to the fact that some of the beat was due to nonoperating items, and that the company materially ramped its capital spending during the quarter.”

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