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Google's Profit Soars 92% in Third Quarter

The Web giant's revenue jumps 70%. Its search query volume grows in September twice as fast as that of No. 2 Yahoo.

October 20, 2006|Martin Zimmerman | Times Staff Writer

Google Inc. said Thursday that its third-quarter profit nearly doubled as the Internet powerhouse continued to rack up gains in the online search market at home and overseas.

The Mountain View, Calif.-based company reported net income of $733.4 million, or $2.36 a share, for the three months ended Sept. 30, up 92% from $381.2 million, or $1.32, in the third quarter of 2005.

Revenue surged 70% to $2.69 billion.

Not including $100 million in expenses related to employee stock compensation, the company's per-share earnings were $2.62, easily beating the Wall Street consensus forecast of $2.42.

Investors cheered the results, which came out after the closing bell. Google's shares, which gained $6.75 to $426.06 during the regular session, surged $31.94, or 7.5%, to $458 in after-hours trading.

"It's hard to argue with how the stock is reacting in the aftermarket," said Mark May, an analyst with investment firm Needham & Co. "The numbers sort of speak for themselves."

Google's results were in sharp contrast to rival Yahoo Inc.'s lackluster report Tuesday. The operator of the most-visited U.S. website Tuesday reported a 38% slide in third-quarter profit amid its slowest growth in four years. The results marked Yahoo's second straight disappointing quarter.

Google's growing dominance in the online search market was also evident in the latest market share statistics. Nielsen/NetRatings reported that Google handled 50% of online search requests, compared with 23.4% for second-place Yahoo. Google's search request volume grew in the last year at twice the rate of Yahoo's, the research firm said.

Heavy capital spending to improve the performance of Google's search engine is paying off by drawing more users, company executives told analysts.

"The fact that they were able to grow their searches at the rate they did indicates that they were able to constantly make improvements," said May, who late Thursday raised his full-year profit forecast for Google from $9.94 a share to $10.16. Google doesn't issue profit forecasts.

Other factors behind the company's strong quarter included a blizzard of products and partnerships the company has unveiled this year, Chief Executive Eric Schmidt said.

Google struck a $900 million deal in August to provide search results and ads on and other websites run by Fox Interactive Media Inc.

Google also reached agreements to place ads on websites run by online auctioneer Ebay Inc. outside the U.S. and to distribute video clips from Viacom Inc.'s MTV Networks. And it forged a partnership with Intuit Inc. that would enable small businesses to use Intuit's bookkeeping software to place Google ads.

Google capped that spree last week when it agreed to buy online video upstart YouTube Inc. for $1.65 billion. When completed, the deal is expected to give Google a major boost in the race to dominate the distribution of video on the Internet.

Given the copyright cloud that has hung over YouTube because of the posting of pirated video clips on the site, some have asked whether Google was buying a major legal headache.

Executives said Thursday they were confident that forging partnerships with video providers such as music companies and movie studios would ease those concerns.

"The strategy with video is to partner, not to focus on legal aspects," Schmidt said. "They need us. We need them."

Google is experimenting with ways to make online video pay. A new program to place video ads on the Web attracted more than 30 companies, said Jonathan Rosenberg, senior vice president of product management.

International markets were an important source of growth in the third quarter, providing 44% of total revenue. Growth was particularly strong in Europe and in emerging markets such as Brazil and India.

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