RISMEDIA, October 20, 2009—(MCT)—Google Inc. reported third-quarter gains in profit and sales that topped Wall Street estimates on Thursday, fulfilling expectations that the Internet giant would start benefiting from increased spending on online advertising.
Google said net income for the quarter that ended in September 2009 rose to $1.64 billion, or $5.13 a share, from $1.29 billion, or $4.06 a share, in the same period last year. Net revenue for the period ended in September rose nearly 1% to $4.38 billion. Excluding special items, the company said earnings for the quarter were $5.89 a share.
Analysts polled by Thomson Reuters had expected Google to post earnings excluding items of $5.42 a share, and $4.24 billion in net revenue. “It was a very strong quarter that justifies the big run-up in the stock over the past couple of months,” said Signal Hill analyst Todd Greenwald.
Google Chief Executive Officer Eric Schmidt said during a conference call with analysts that, “We’re very, very happy,” adding, “The worst of the recession is clearly behind us.”
Shares of Google rose more than 3% in late trading following the earnings release, to $547.30.
Google said its paid clicks, or number of times users clicked on its online advertisements and generated revenue, grew 14% compared to the same period last year, and 4% compared to the prior period. However, the average price paid by advertisers per click fell 6% compared to the period last year, while increasing 5% over the prior period. Greenwald said prices paid by advertisers were “definitely a bright spot” in Google’s report, as the decline compared to last year was “a lot less than people expected.”
Google has also sought in recent months to rein in costs. The company said general and administrative costs fell to $389.6 million in the quarter, compared to $507 million in the same period last year. Once widely known for spending lavishly on hiring and perks, Google’s effort to cut costs under Chief Financial Officer Patrick Pichette has earned praise from Wall Street. Google said it had 19,665 employees as of the end of September, compared with 19,786 in the prior quarter that ended in June. The employee count had been as high as 20,222 in December. Pichette said during the conference call that because the company anticipates better economic conditions, it will be “accelerating hiring across the organization.” Pichette declined to specify any particular goals for hiring, saying only that there is no specific quota, as “you have to find the right Googler.”
“We’re investing, and we’re investing heavily,” Pichette said, while noting that specific areas of investment within the company include its Google Apps business, and mobile phone services. Pichette said that searches done on mobile phones through Google grew 30% in the quarter. Meanwhile, the city of Los Angeles is reportedly considering the use of Google Apps, a set of tools including word processing and e-mail that Google sells on a subscription basis. The product is positioned as a competitor to Microsoft Corp.’s Office suite of software. Google also said it saw a strong performance from its YouTube video service in the period. Still, the company declined to specify whether or not YouTube is profitable or not. Pichette reiterated an earlier statement that the service is “on its path to profitability in the not-too-distant future.” The CFO added, “We’re monetizing more than a billion video views every week on YouTube.” Google paid $1.65 billion to acquire YouTube in 2006.
Schmidt indicated that similarly large acquisitions are now possible amid an improving economy—but added that they won’t be frequent. In general, Schmidt said, the company seeks out smaller acquisitions. “We’re certainly looking for larger businesses to buy,” the CEO said, though “those will be relatively rare- maybe every year or two.”
Greenwald said that while Google’s third-quarter results are encouraging, their significance for the rest of the online advertising market is uncertain. “Whether or not they’re a real barometer for the sector, we won’t know that tonight,” the analyst said.
(c) 2009, MarketWatch.com Inc.
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