Google, the dominant Internet search engine worldwide, reported an astonishing rise in fourth quarter sales and profit Wednesday, with net income nearly tripling to $1.03 billion from $372.2 million for the same period in 2005.
"Business continues to be very, very good here at Google," Eric Schmidt, chief executive of Google, said in a conference call with investors and reporters.
In an interview, Schmidt said Google's business, which earns most of its revenue when users click on ads that appear next to search results, was strong in terms of traffic and advertising growth in the United States and internationally.
Google is also showing fewer ads on each search, but those ads are more relevant to users and are clicked more frequently which generates a better return for Google and for advertisers, he said.
Derek Brown, an analyst with Cantor Fitzgerald, said, "Their performance is extraordinary even in absolute terms, but particularly in comparison with the companies they are competing with."
Google said net income for the quarter translated into $3.29 a share, up from $1.22 a share in the final quarter of 2005. Excluding charges related to stock-based compensation and other adjustments, the company earned $997 million, or $3.18 a share.
Analysts had expected Google to earn $2.92 a share, excluding one-time items, according to Thomson Financial.
Google's quarterly revenue rose 67 percent from a year ago to $3.21 billion. Google sells ads that are displayed on other sites, and passes most of the revenue from those ads to the sites owners. Excluding those payments, Google's revenue was $2.23 billion.
Some analysts said Google's growth could even accelerate further this year.
"I still see a lot of good things coming down the pike," Safa Rashtchy, an analyst with Piper Jaffray.
Shares of Google closed Wednesday at $501.50, up $7.18. After the earnings report, the stock was trading slightly below $500, apparently reflecting the unrealized hopes of some investors that the results would be even more impressive.
Google's results come at a time when the company is rapidly expanding its product offerings, developing partnerships with the likes of AOL and MySpace, integrating its acquisition of the video search service YouTube and experimenting with new forms of advertising, including video, audio, print and on cellphones. The company and analysts said they see many of these initiatives paying off financially over the next couple of years.
Schmidt said that while text ads linked to search results continued to perform extremely well, Google's diversification was essential to its future growth. And he dismissed criticism that the company has introduced too many products, including many that have not been hits with users, and risks losing focus.
"We have concluded that we are expanding our mission, if anything, not fast enough," he said.
Schmidt also said that search on cellphones and other portable devices would grow substantially in 2007, but the financial effect would not be noticed until 2008.
Google said YouTube, which it acquired for $1.65 billion during the fourth quarter, would continue to operate with a large degree of autonomy, but that Google would use its technology and expertise in online advertising to cash in on YouTube's growing popularity.
Just last week, Google announced that YouTube videos would appear among the results on Google's own video search service, and Schmidt said the company would experiment with a variety of advertising models on the video Web site. But the acquisition remains clouded by the threat of potential litigation by movie studios against Google over the proliferation of copyrighted videos on YouTube.
Schmidt said that after the YouTube acquisition, Google executives began intense rounds of talks with copyright owners, and he sounded hopeful that litigation would be averted.
"A bunch of us got on airplanes to talk to everybody," Schmidt said. "There is a relatively lengthy process of education on both sides. There is lots and lots of talking, and we have not hit any walls."
Google continued to invest heavily in its infrastructure, like big data centers, which the company said was a continuing source of competitive advantage. The company said capital expenditures were $367 million during the quarter.
"We can now handle more user queries and respond more quickly," said Larry Page, a Google co-founder and president of products.
In the fourth quarter, Google also began heavy promotion of its Checkout service, an e-commerce payment system that competes with PayPal. During the Christmas holidays, Google offered consumers $10 rebates on purchases of $30 or more, and in some cases $20 rebates on purchases of $50 or more. It also agreed to pick up processing fees typically paid by merchants for credit card or PayPal payments, which can add up to a few percentage points.
ITM
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