Google Profits Soar Sixfold

by Shankar Gupta, Apr 22, 2005, 7:00 AM

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Google announced record revenue of $1.265 billion for the first quarter on Thursday--22 percent increase over the fourth quarter of 2004, and a 93 percent over the first quarter of 2004.

Net income for the quarter topped $369 million, or $1.29 per share, compared to 24 cents per share last year. Profit, excluding stock-based compensation costs, was $1.46 a share--significantly higher than analysts' average estimate of 92 cents a share.

"We were very busy this quarter, launching dozens of new products and features," said Google co-founder Larry Page. "At the same time we released all of these new products and features, we remained focused on our core effort: Search."

Google said revenues from its own sites increased year-over-year by 116 percent to $657 million, or 52 percent of total revenues. AdSense contributed $584 million to revenues, or 47 percent of the total, which represented a 75 percent increase from last year.

U.S. revenue from paid search, the chief source of Google's income, grew 72 percent from last year's first quarter, according to eMarketer's lead analyst, David Hallerman. "Seventy-two percent growth is super-healthy for any business," he said. "They've been the dominant company in paid search." According to Neilson//Netratings data, Google claims 47 percent of Internet searches, more than its top two rivals combined, with Yahoo! grabbing 21 percent and MSN collecting 14 percent.

Google Chief Financial Officer George Reyes attributed the increase in earnings to "increased traffic and the ability to monetize that traffic." Another factor in the company's growth, Reyes said, was its growth into European markets and a full quarter of its partnership with AOL Europe. "We are very focused on the non-U.S. portions of our business," Reyes said.

This week, Google announced the launch of Google Local in the United Kingdom, and Google CEO Eric Schmidt said that the company expects growth to continue in key markets in the U.S. and abroad. "We continue to see broad growth across the U.S. and international markets," said Schmidt. "We're just at the beginning of the penetration of this kind of technology. We're not seeing saturation in key markets." Hallerman agreed that the international growth has been key to their success. "Their overseas market is doing even better than their U.S," he said.

According to Hallerman, Google's growth will likely hold on in the short- and mid-term, but in the long term, the company must expand beyond paid search as their chief revenue stream. "They can continue this for a number of years, but it's not a permanent solution for a company," he said. "They need to still expand beyond paid search in the long term. In the short and even the mid term, though, this is just going to remain healthy."

Page discussed briefly possible plans for branded advertising or more graphics-intensive ads on Google, but was tight-lipped about future plans. "We have a number of efforts going on along those lines to get our advertising to be more graphical and so on," he said. "You'll see us roll those out in much greater force over our content network in order to give the user basically a good experience."

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