Google profit nearly doubles

Strong search advertising pushes Google third-quarter profit up, beating estimates.

Elinor Mills Former Staff Writer
Elinor Mills covers Internet security and privacy. She joined CNET News in 2005 after working as a foreign correspondent for Reuters in Portugal and writing for The Industry Standard, the IDG News Service and the Associated Press.
Elinor Mills
3 min read
Google's third-quarter profit nearly doubled from a year ago as sales of keyword-related advertising continued to grow for the world's top Web search engine.

"Business is very, very good here at Google. We had an excellent quarter in all respects, especially in international," Google Chief Executive Eric Schmidt said in a conference call Thursday after the results were released.

During the quarter, Google saw strong user growth and improvements in search quality and ad sales, Schmidt said.

The news sent Google's stock up shares rising nearly 8 percent to $459.51 in after-hours trade, after closing at $426.06. The earnings announcement was made right after the market closed.

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Net earnings for the quarter ended Sept. 30 were $733 million, or $2.36 a share, including one-time items such as stock-based compensation, compared with $381.2 million, or $1.32 a share. Excluding those items, earnings were $812 million, or $2.62 a share.

Total revenue for the third quarter rose 70 percent to $2.69 billion, compared to $1.58 billion a year ago. Excluding traffic acquisition costs, or commissions paid to content partners, revenue was $1.87 billion.

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Analysts polled by Thomson Financial were expecting Google to post earnings per share of $2.42 excluding items, and revenue of $1.81 billion excluding traffic acquisition costs.

Paid search represents nearly all of Google's revenue.

Last week, at the start of the fourth quarter, Google sent shock waves through the industry when it said was purchasing popular video-sharing site YouTube for $1.65 billion in stock.

"We're relying on the Digital Millennium Copyright Act as it is being imposed by law. There are not a lot of shades of gray in how it works," he said. "If you operate under this, companies have safe harbor. We do our very best to implement it as it is prescribed...It's the law of the land and we absolutely operate by it."

On Tuesday, Yahoo reported disappointing third-quarter results. Ranked second in Web search, Yahoo cited lower than expected ad sales from some of its large advertisers, in posting net income that dropped by nearly a third from a year ago. To offset the bad news, Yahoo said its delayed search advertising platform "Panama" was finally live.

It was the latest, and biggest, of a series of deals Google has made recently, including one in August with News Corp.'s MySpace. Google guaranteed it would pay $900 million over three years in exchange for being the provider of Web search and advertising listings on the popular social network.

Schmidt said the YouTube deal represented "the ultimate partnership." Schmidt was asked by an analyst during a question-and-answer session whether he was concerned about YouTube being sued by big media companies over copyright violations because users have been known to post TV and other content without permission.

Google has about 44 percent of the U.S. search market share, up from 37 percent a year ago, while Yahoo's market share has declined to 28.7 percent from nearly 30 percent a year earlier, based on Internet users, according to ComScore.

Nielsen/NetRatings says Google accounts for half of all Web searches in the U.S.

Not only does Google receive more Web searches and more search users, but it is able to make money from those searches much better than its closest rival.

Google's U.S. ad revenue growth rate is expected to rise nearly 65 percent from last year, while Yahoo's will grow only 17.5 percent, according to eMarketer. Google will garner one-quarter of the U.S. Internet ad revenue as opposed to the 18 percent Yahoo is expected to pocket.

Mark Mahaney, an analyst at Citigroup, praised Google's results, saying they were "extremely strong, indicating a still robust search market, market share gains, and excellent execution."