Google Rides High On Strong First-Quarter Revenues

by Tameka Kee, Apr 18, 2008, 7:00 AM

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Google's stock soared by nearly $80--more than 17%--in after-hours trading after the search giant delivered first-quarter results for revenues, paid-click growth and earnings that exceeded Wall Street's expectations.

"It's clear to us that we're well-positioned to thrive, regardless of the business conditions that surround us," said Google CEO Eric Schmidt, shrugging off concerns about a sluggish U.S. economy.

Revenues jumped by 42% year-over-year to reach $5.1 billion--trumping Wall Street's consensus of about $3.5 billion. Excluding capital expenditures and other operating costs, the search giant posted a net operating income of more than $1.8 billion, with free cash flow at $938 million. Earnings per share came in at $4.84--beating analysts' expectations that averaged in the $4.50 range.

Part of Schmidt's optimism in the face of what he called "macroeconomic factors" in the U.S. stemmed from the fact that a slight majority of Google's revenues (51%) came from outside of the United States--the first time since the search giant began operating internationally.

Schmidt also scoffed at recent industry apprehension about comScore's reports of paid-click growth deceleration. "Paid-click growth is much higher than has been speculated by third parties," he said, referencing the 20% growth year-over-year in paid clicks, both on Google and AdSense partner sites. Paid clicks were up by a more modest 4% from the previous quarter.

Although the $3.1 billion DoubleClick acquisition closed toward the end of the quarter, Google CFO George Reyes said that the deal had an "immaterial" effect on revenues and was only "slightly" dilutive to operating and net incomes, as well as earnings per share.

Still, Reyes did note that the acquisition had added more than 1,500 employees to the company's 19,156 headcount--and that roughly 10% of the DoubleClick workforce in the U.S. was in the process of being laid off. Reyes said that Google expects to trim DoubleClick's U.S. headcount by an additional 15% in the "near to intermediate term," not including employees of Performics, DoubleClick's search engine marketing (SEM) division.

Moving forward, Google's top brass expect the DoubleClick buy to positively impact multiple areas of the business. According to Jonathan Rosenberg, Google's senior vice president of product management, the goal is to become "the world's largest display advertiser" while getting publishers and marketers to buy into a Google-centric multichannel ad platform.

"The biggest thing we're seeing is the concept of an advertiser owning a concept across the entire Web," Rosenberg said. Activision, for example, used seven of Google's ad products when it launched Tony Hawk's Proving Ground last year. Rosenberg said the campaign was only possible because publishers were adopting the plethora of new ad formats Google offered--including gadget ads, video and mobile--in addition to search.

Omid Kordestani, Google's senior vice president of global sales and business development added that DoubleClick was giving the search giant access to clients it otherwise wouldn't have served as effectively.

"In the past quarter, using DoubleClick's sales force, we were able to develop a campaign with Nature Valley that utilized YouTube, Gadgets and Feedburner," Kordestani said. He also cited Forex, Toyota, Dunkin' Donuts and the World Economic Forum in Davos as brands that had become Google clients as a result of the DoubleClick integration.

Both Kordestani and Rosenberg agreed that there were no concerns for advertiser or publisher cannibalization in terms of DoubleClick's DART and AdSense. "Adding more display to the marketplace creates more competition," Rosenberg said.

As for a permanent Yahoo search partnership that had been dubbed "increasingly likely" by Wall Street Journal sources, Schmidt would only allow that the giant was excited to be participating in the test. "It's the beginning of the second week and we can't speculate beyond that, but it's nice to be working with Yahoo," Schmidt said.

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