Google Doubles Revenue, Defies Predicted Summer Slowdown

by Shankar Gupta, Oct 21, 2005, 6:00 AM

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In what is becoming a quarterly ritual, Google Thursday again announced another record earnings period, posting revenues of $1.578 billion--up 96 percent over the third quarter of last year.

The earnings were far rosier than the company had led investors to expect last quarter, when Google brass cautioned that the summer typically is the weakest time of year for advertising.

"Although this is typically a slower season for Internet properties, we had another exceptional quarter," said Google CEO Eric Schmidt in a teleconference with press and analysts. "Our focus on end users and on quality of information and advertising worldwide continues to work extremely well."

The search giant's net income rose to $381.2 million, $1.32 per diluted share, which is up from $52 million--19 cents per share--during the same period last year. Analysts had predicted earnings of $1.22 per share.

Google Chief Financial Officer George Reyes attributed the continuing upsurge in profits to product improvements.

This quarter, Google increased its spending on research and development by about $56 million--from 14 percent of total revenue last quarter to 15 percent of total revenue this quarter, Reyes said.

According to eMarketer analyst David Hallerman, the uptick in research and development spending indicates that Google plans to come out with new products. "They're shooting out so many different ideas, and they're not all going to stick in terms of revenue--but they have so many of them," he said.

In a conference call with the press and analysts, Google co-founder Sergey Brin mentioned that the company had offered to provide wireless Internet access throughout San Francisco, and had taken steps to offer Voice over Internet Protocol telephone service. Google was considering expanding in both areas, he said.

Hallerman also pointed to the large sum of cash that Google now holds on hand--$7.6 billion, according to Reyes--as another indicator of strategy. "Bottom line is with cash like that, they're going to be asking what smaller companies can they buy up--what partnerships can they buy into?" he said.

eMarketer's research estimates that 2005 will mark the first year that Google's revenue will outstrip that of competitor Yahoo!. Google will close out the year with over $3.6 billion--or 28 percent--of total U.S. online ad revenue, Hallerman said. eMarketer's research puts Yahoo!'s end-of-year earnings at $3.1 billion, or 24 percent of total U.S. online ad spending.

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