Google's Q3 Profit, Revenue Top Views On Surging Search

After a rare miss in the second quarter, the Web's No. 1 search service beat third-quarter forecasts late Thursday.

Google earned $3.91 a share, up 49% vs. a year earlier. Analysts expected $3.78.

Revenue jumped 62% to $3.01 billion excluding traffic acquisition costs, the fees it pays other Web sites that carry its ads. Analysts had expected $2.93 billion.

Google follows strong results from Web portal Yahoo and online auction leader eBay. Both beat forecasts earlier this week.

Its shares rose 1% in volatile late trade after a 1% gain to a new high of 639.12 ahead of results. That was 33% above its Aug. 16 low.

Google gets almost all of its revenue from paid search -- the largest segment of the multibillion-dollar online ad market.

Business is booming, says Sandeep Aggarwal, senior analyst for Oppenheimer & Co.

"Their growth is still like a startup company, and you still feel that the opportunities they have are endless," he said.

'Model Continues To Work'

Google continues to shine by sticking to its plan, CEO Eric Schmidt said on a conference call.

"The search-quality investments that we are making are paying off, particularly internationally as we do better and better in almost every country," he said. "It's obvious to us that our model continues to work very well."

Google doesn't provide guidance. But analysts see fourth-quarter profit rising 36% to $4.31 a share as core revenue swells 52%.

Google is benefiting from more advertisers buying its text-based ads, which show up near search results. Advertisers pay only when a consumer clicks on an ad.

Sales of ads sold on Google's own sites jumped 68% to $2.73 billion. Ads on partner sites grew 40% to $1.45 billion.

A search-software tweak to help ads better match search queries is likely responsible for at least some of that growth, says Scott Kessler, an analyst for Standard & Poor's equity research services.

Overseas sales accounted for $2.03 billion, or 48%, of total revenue, up from 44% a year earlier.

"International has been very strong for them," said Youssef Squali, an analyst at Jefferies & Co. "They continue to gain market share even in the United Kingdom, where they have 70%-plus market share."

Google needs to push offshore because U.S. growth has slowed,Kessler says.

"This is a very saturated market," he said.

Even so, Google continues to dominate in the U.S. It held 57% of the U.S. search market in September, said comScore Networks. Yahoo had 23.7%; Microsoft had 10.3%.

More Mountains To Climb

Google has several challenges ahead.

The company had said it would rein in hiring after a second-quarter staffing binge caused the company to miss analysts' profit forecasts. It added another 2,130 jobs, a rise of 15%, in the third quarter.

Google's bid to enter the lucrative display ad market by buying DoubleClick has been thwarted by a lengthy government review.

Google has been scrambling to bring its search ad service to mobile devices. It has been rumored for months to be developing an operating system for cell phones.

Google has been developing its Google Apps desktop applications, which could add up to $70 million in revenue in 2008, Aggarwal says.

The company has just started letting Web partners get videos with ads from YouTube. Google bought the video clip Web site last year.

Google is the king of search but still needs to diversify its revenue, Kessler says.

"This is a one-trick pony, but it's really a great trick. But they are obviously trying to improve their repertoire," he said.

U.S. search engines in China were being hijacked and directed to Chinese-owned Baidu, analysts said Thursday. They speculated it's retaliation for America's award to Tibet's exiled Dalai Lama.