April 20, 2006

Google reports first-quarter sales and earnings that are substantially higher than Wall Street's estimates.

Shares of Google increased nearly 6 percent in extended-hours trading, according to Inet.

The stock had moved up 1.1 percent in regular trading on the Nasdaq Thursday.

Google's results are the latest indication of just how strong the online advertising market is. Yahoo! (Research), Google's top rival, reported strong first-quarter sales and earnings on Tuesday.

Both companies are benefiting from robust demand for ads tied to specific keyword search queries but Google depends almost entirely on this market for its sales and profits.

Revenues for Google were $2.25 billion, up 79 percent from a year earlier. Excluding traffic acquisition costs (or TAC) that the company shares with advertising partners, Google reported sales of $1.53 billion, ahead of the $1.44 billion that Wall Street analysts were expecting.

"We're obviously very happy with the company's first-quarter results," said Google chief executive officer Eric Schmidt during a conference call with analysts Thursday. "We basically have good news across the business. It looks like to us that we have continued to gain market share."

The company reported net income of $592 million, or $1.95 per share, an increase of 60 percent from the same period last year. Earnings came in at $2.29 a share, excluding the cost of stock-based compensation and some other charges. That was well ahead of the $1.98 per share that analysts had forecast for the company on this basis.

"Google absolutely blew forecasts away. The company has tremendous momentum and clearly is leading the growth in this market," said Marianne Wolk, an analyst with Susquehanna Financial Group.

Nonetheless, shares of Google have been extremely volatile during the past few months.

The stock is still trading about 13 percent below its all-time trading high from mid-January. The company reported fourth-quarter results in late January that were below consensus forecasts. That was the company's first earnings miss in its short history as a public company and caused some to wonder whether online ad growth was cooling.

But the stock has skyrocketed more than 21 percent since late March on optimism about first-quarter results and the news that Google was being added to the benchmark S&P 500 index.

The strong first-quarter results should lead to even more gains in the stock as well, Wolk said. Google does not give sales and earnings guidance but Wolk said that analysts will likely raise their targets for the second-quarter and all of 2006 in the coming days.

Currently, analysts are forecasting sales, excluding TAC, of $1.55 billion for the second quarter and $6.57 billion for the full year. Earnings, excluding stock-option costs and other charges, are expected to come in at $2.06 per share for the second quarter and $8.74 a share for all of 2006.

Sasa Zorovic, an analyst with Oppenheimer, said he was impressed by the fact that Google's international revenue grew as much as it did. Revenue from outside the U.S. nearly doubled from a year earlier and accounted for 42 percent of total sales in the quarter.

Zorovic added that it was encouraging to see Google's earnings grow as rapidly as they did. There were some concerns about profit being hit as a result of the company's heavy capital spending plans. Google has invested a sizable amount of money into new infrastructure and has rolled out several new products during the past few months.

"In spite of all the snickering about expenses, Google has some cost controls in place," he said.

During the call, however, Google chief financial officer George Reyes pointed out that, for the remainder of the year, capital expenditures were likely to grow at a faster rate than sales.

Source: CNN Money

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