Google posts strong Q3 financial results

Financial analysts set their targets a little too low this quarter, as Google's ad revenue increased at a strong clip compared to the prior year.

Google continues to pile up the money, beating analyst estimates today for revenue and earnings for its third quarter.

Third-quarter revenue, excluding the traffic acquisition costs Google pays to its partners, was $5.48 billion, exceeding estimates from analysts polled by Yahoo Finance of $5.25 billion for the quarter. Overall revenue of $7.29 billion increased by 23 percent, compared to last year's third quarter, on the back of a 16 percent jump in paid clicks across Google's network of Web sites.

"We're very pleased with our Q3 results, and it's clear that the digital economy continues to grow rapidly," Google's Patrick Pichette, chief financial officer, said on a conference call following Google's announcement.

Net income was $2.17 billion, a 32 percent increase compared to net income of $1.64 billion a year ago. Earnings per share, excluding the effects of certain one-time costs and stock option compensation costs, were $7.64, as compared to analyst estimates of $6.67.

Revenue from both Google-owned sites, powered by AdWords ads, and Google network sites, powered by AdSense ads, grew 22 percent, compared to the prior year. Google's own sites account for 67 percent of its revenue, while partner sites chip in 30 percent of the overall total.

Google provided a few details that it has kept under wraps until this point, when it comes to metrics that don't involve search ads. Jonathan Rosenberg, senior vice president for product managers, told financial analysts on the earnings call that Google has reached three milestones: it's on pace to gain $2.5 billion a year in revenue from display ads and $1 billion a year in revenue from mobile devices, and it's monetizing 2 billion views of YouTube videos a week.

Display ads have long been a target for Google, which is trying to get the companies and agencies that spend billions of dollars on its text search ads to use Google as their display ad broker as well. In addition, YouTube's financial contribution has been long in the making. Google still refused to say whether YouTube is profitable, which would seem to imply that it's not, but Google CEO Eric Schmidt has previously said the company expects YouTube to become profitable this year.

Rosenberg also disclosed that Google Instant, launched in September, has made a very minimal contribution to Google's revenue and is more expensive to run than the regular old search results process. He was hoping to counter arguments that Google launched Google Instant simply to generate more searches--and therefore more clicks on ads--saying flat-out, "we didn't launch Instant to make more money."

Cash is king at Google: it now has $33.4 billion on hand in cash, cash equivalents, and marketable securities. The company hired about 1,500 new employees during the quarter, raising its total head count to 23,331 at the end of the quarter, or the three-month period ending September 30.

Pichette spent a great deal of his prepared remarks reminding the financial community that Google still thinks of itself as a growth company, at a time when many in Silicon Valley are looking at places like Facebook and Twitter as the next big sources of growth on the Internet. "We are on this growth agenda at full throttle," he said, noting that Google was "continuing to explore" how it could hire the right people it needs, and retain the good ones it already has, amid "a war for talent" in the Valley.

Updated at 2:50 p.m. PDT with additional details from the conference call.

 

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