Google dazzled investors Thursday with a third-quarter profit that nearly doubled, topping analyst estimates by a breathtaking 20 cents per share. During conference call, it says it’s eyeing new opportunities for online video ads with its planned acquisition of YouTube Inc.
SAN FRANCISCO (AP) — Still mindful of the dot-com bubble, plenty of skeptics scoffed earlier this year when several Wall Street analysts rated Google Inc.’s stock price as a bargain at $400. Those bullish appraisals don’t look so outrageous after Google dazzled investors with a third-quarter profit that nearly doubled, topping analyst estimates by a breathtaking 20 cents per share.
”I am pretty amazed,” Google Chief Executive Eric Schmidt said during an interview Thursday after the results were released. ”I did not expect us to do as well as we did.”
The surprise had investors scrambling to buy Google’s stock, lifting the shares by more than 7 percent in an after-hours move that signaled the company’s market value may rise by another $10 billion Friday. That’s enough wealth to finance another six deals similar to Google’s recently announced plans to buy the Web’s hottest video service, YouTube Inc.
The stock price now appears poised to reach its highest levels since January when it peaked at $475.11.
Besides reminding investors of Google’s moneymaking prowess, the third-quarter performance underscored the Mountain View-based company’s widening advantage over its main Internet rivals.
Yahoo Inc., which runs the Internet’s second-largest advertising network behind Google, 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.”
Chowdhry believes it won’t be long before Google shares hit $600 _ a target first established at the beginning of the year by Piper & Jaffray Safa Rashtchy.
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 that Google recently bought as a keepsake.
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. That tendency means Google should have fewer opportunities for its search engine to display the short text-based ads that account for most of its profits.
Google instead fared even better in the summer than in the winter, both in total profit and growth rates.
The company earned $733.4 million, or $2.36 per share, for the three months ended in September. That represented a 92 percent increase from net income of $381.2 million, or $1.32 per 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 per share in the third quarter_ well above the average estimate of $2.42 per share among analysts surveyed 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.
Surpassing Wall Street’s lofty expectations is nothing new for Google, which now has blown past analysts’ projections in all but one of the nine quarters since its much-ballyhooed initial public offering of stock in August 2004.
The routine delights investors. Google shares gained $6.75 to close Thursday at $426.06 on the Nasdaq Stock Market, then climbed by $31.94, or 7.5 percent, in after-hours trading.
Google’s success so far has hinged on its search engine, a piece of revolutionary technology that continues to attract new users.
In September, Google’s held a 45 percent share of the U.S. search market, up from 44 percent in August, according to comScore Media Metrix. Yahoo’s search share dipped to 28 percent in September, down from 29 percent the previous month while Microsoft Corp.’s share continued to hover around 12 percent, Media Metrix said.
That comfortable lead apparently hasn’t made the company lackadaisical. Brin told analysts that Google recently introduced several improvements that increased the breadth and freshness of the search engine’s index.
Meanwhile, Google continues to find new ways to pick out the ads most likely to pique enough interest to be clicked on, as Google makes money based on the number of clicks, Brin said.
”There are always new ways to monetize,” Brin said during a Thursday conference call with analysts. ”I don’t see an obvious ceiling.”
Toward that end, Google already is eyeing new opportunities for online video ads with its planned acquisition of YouTube Inc., which has become one of the Internet’s hottest entertainment hubs. Google hopes to complete the $1.65 billion deal in the next month or so.
Although Google is buying San Bruno-based YouTube with its prized stock, the company also has plenty of money to finance its grand ambitions. Google ended September with $10.4 billion in cash.
As it grows, Google is hiring more workers at a furious pace. More than 1,400 more workers joined Google in the third quarter, expanding its payroll to just under 9,400 employees. For the past year, Google has been hiring an average of a dozen new employees per day.