Google Stock Rises on Strong 1Q Earnings

Friday, April 22nd 2005, 10:34 am

By: News On 6

SAN FRANCISCO (AP) _ Google shares climbed more than 8 percent in early trading Friday after reporting sharply higher earnings for the first quarter, the latest unexpectedly strong financial report since its initial public offering of stock eight months ago.

Google shares surged $16.75, or 8.2 percent, to $220.97 in early trading on the the Nasdaq Stock Market.

The Mountain View-based company provided yet another boost Thursday, announcing earnings of $369.2 million, or $1.29 per share, for the three months ended in March. That compared with net income of $64 million, or 24 cents per share, at the same time last year.

Revenue totaled $1.26 billion, nearly doubling from $651.6 million at the same time last year. After subtracting commissions that Google paid to other Web sites in its advertising network, the company's first-quarter revenue was $794.5 million.

If not for a charge to account for stock options that Google awarded its workers before going public, the company's earnings would have ranged between $1.39 to $1.46 per share.

Google's profit wouldn't have been quite as impressive without an abnormally low effective tax rate of 19 percent during the quarter. Caris & Co. analyst David Garrity estimated Google would have earned $1.12 per share if the company's tax rate had been at a more normal 30 percent.

By any measure, Google's earnings easily topped the 92 cents per share forecast by analysts in a Thomson Financial survey.

``The quarter was nothing short of phenomenal,'' Garrity said. ``These guys are really in a sweet spot in their industry.''

Google's earnings have soared beyond analyst estimates in all three quarters since the company completed its much-anticipated IPO at $85 per share in August.

The IPO generated the most investor excitement since the dot-com boom, amplifying the pressure on Google to continue the rapid financial growth that helped make it a hot commodity in the first place.

Although Google management expressed little interest in pleasing Wall Street, the company's stellar financial performance has created even more euphoria.

``Google is an amazing place,'' company CEO Eric Schmidt said during a Thursday interview. ``I see no sign of things slowing down.''

Google shares jumped $18.71, or 9.2 percent, in extended trading Thursday, to $222.93. If the stock reacts similarly when trading opens Friday, Google's shares would climb to a new high, exceeding the $216.80 reached shortly after the company announced its earnings for the final quarter of 2004.

Thursday's news produced a boon for Google's shareholders, whose combined stake climbed by $7.1 billion, boosting the company's market value to $64 billion. Most of the gains occurred in extended trading. No one fared better than Google co-founders Larry Page and Sergey Brin, who each own stock worth $8 billion.

Google makes virtually all of its money from the text-based ads that are tied to online search requests. The company gets paid each time one of the links are clicked on Google's home page or hundreds of other sites that display the ads.

The text-based ads, which are priced using an online auction system, are becoming more expensive. Advertisers bid an average of $1.75 per click in March, a 6 percent increase from February, according to Fathom Online, a research firm.

The online advertising boom is enriching many Internet companies, but none are benefiting more than Google and Yahoo, which operate the Web's most popular search engines. Google is by far larger, processing 2.06 billion search requests in March compared with 907 million for Yahoo Inc., according to Nielsen/NetRatings, an Internet research firm.

``The entire sector is very robust right now, but Google is growing faster than Yahoo,'' said American Technology Research analyst Mark Mahaney.

That growth has made Google even more profitable than Sunnyvale-based Yahoo, a slightly older company with twice as many employees. Yahoo earned $204.6 million on revenue of $1.17 billion during its first quarter. Google may have other advantages besides its larger market share.

Many analysts believe Google has devised a better formula for deciding which ads are most closely related to a search request, resulting in more revenue-producing clicks.

Google also is making more money internationally. The company generated 39 percent of its revenue overseas in the first quarter, up from 35 percent in the previous quarter.

For all its success, Google still faces plenty of challenges, starting with software giant Microsoft Corp.'s resolve to grab a piece of the lucrative search engine advertising market.

Google also is entering a stretch when Internet traffic traditionally has dropped off as people spend more time outside to enjoy warmer weather and more daylight in the evenings. That pattern might result in fewer Internet searches, slowing Google's growth in the second and third quarters.

But the company, so far, has been able to defy skeptics.

``I am particularly proud of our sound execution during this period of very rapid growth,'' Schmidt told analysts during a Thursday conference call.