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Google Profit Jumps on Market Share Gains From Yahoo (Update1)

By Ari Levy

Oct. 18 (Bloomberg) -- Google Inc., owner of the most- popular Internet search engine, said third-quarter profit rose 46 percent after the company extended its lead over Yahoo! Inc. and sold more ads on YouTube.

Net income rose to $1.07 billion, or $3.38 a share, from $733.4 million, or $2.36, a year earlier, Google said today in a statement. Sales jumped 57 percent to $4.23 billion. Excluding sales passed on to partner Web sites, revenue rose to $3.01 billion, beating analysts' estimates.

Google has reported sales growth of more than 50 percent in all of its 13 quarters as a public company, spurred by search query gains from Yahoo and Microsoft Corp. Mountain View, California-based Google handled four times more global queries than Yahoo in August, according to ComScore Networks Inc.

``It's nice to see them back on track, delivering earnings above expectations,'' said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York. The profit is ``a very strong number.''

Excluding stock-based compensation costs, profit was $3.91 a share, topping the $3.78 average estimate of analysts in a Bloomberg survey. Analysts predicted net sales of $2.94 billion.

Google shares fell $1.83 to $637.79 in extended trading. The shares gained $6.14 to $639.62 at 4 p.m. New York time on the Nasdaq Stock Market and have advanced 39 percent this year.

The company has now beaten analysts' profit estimates in all but two of its earnings reports. The stock passed $600 this month, buoyed by Google's market-share gains and advertisers shifting more spending to the Web.

Video Ads

To sustain growth, Google began selling ads in video clips on YouTube during the quarter, and this month started offering Web sites a way to run clips and related ads alongside articles. The company bought YouTube for $1.65 billion last year.

``We're surprised at the number of people willing to experiment with these new formats,'' Vice President Marissa Mayer said in an interview yesterday at the Web 2.0 Conference in San Francisco. ``They ultimately will be very large businesses.''

Google is also trying to extend its ads beyond personal computers to mobile handsets. Last month, the company introduced a version of its AdSense software for mobile-phone Web sites, letting them show ads relevant to their content.

``Most of Google's revenue now is initiated through a PC- related search,'' said Sandeep Aggarwal, an analyst at Oppenheimer & Co. in San Francisco. He rates the shares ``buy'' and doesn't own any. Mobile ``could be a very attractive platform for them and definitely accelerate revenue growth.''

Yahoo's Results

Yahoo, owner of the most-visited U.S. Web site, reported profit two days ago that beat analysts' estimates on higher sales of display ads. That lifted expectations for Google. Of 38 analysts who follow Google's stock, 34 recommend buying it and four say hold.

Google accounted for 61 percent of global search queries in August, ahead of Yahoo's 14 percent and Microsoft's 4 percent, according to Reston, Virginia-based ComScore. In the U.S., Google had 57 percent of the market in September, compared with 24 percent for Sunnyvale, California-based Yahoo and 10 percent for Redmond, Washington-based Microsoft.

That dominance helped Google generate cash of $3.36 billion in its past three reported quarters, 2.6 times more than Yahoo over the same period, according to data compiled by Bloomberg.

In July, Google reported profit that missed analysts' estimates because the company increased spending on research and hired more workers. The shares fell 5.2 percent the next day.

Google has a policy of not forecasting profit, a practice the company says prevents it from finessing earnings to meet analysts' expectations.

To contact the reporter on this story: Ari Levy in San Francisco at Alevy5@bloomberg.net

Last Updated: October 18, 2007 16:25 EDT


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