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Google - Source: Reuters -
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Google Inc's growth machine is back in gear.
The world's No. 1 search engine not only posted
higher-than-expected third-quarter profits and revenues, but also
said it was looking for major acquisitions and could buy a large
company "maybe every year or two."
"While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future," Google CEO Eric Schmidt said on Thursday.
"We're open for business in making strategic acquisitions, both large and small," he told analysts on a conference call.
Shares of Google, which have surged over 80% since mid-March and set a fresh 52-week high this week, rose 3.2% to $US547.00 in extended trading.
Google was widely expected to be one of the biggest, early beneficiaries of an economic recovery, thanks to its dominance of the online search market, whose growth has slowed as recession-hit companies cut back on advertising spending.
Net revenue in the third quarter - excluding traffic acquisition costs, or the money that Google shares with partners - rose 8.5% from a year earlier to $US4.38 billion, beating the $US4.24 billion expected by analysts.
Net revenue also grew quarter-on-quarter for the first time this year, after being roughly flat in the second quarter and falling for the first time ever in the first quarter.
"Google has no competition. Yahoo is withering on the vine and
(Microsoft's) Bing is too tiny now," said Colin Gillis, senior
analyst at Brigantine Advisors.
"They did great on every single metric. We think this is
sustainable."
Net income was $US1.64 billion, or $US5.13 a share, compared with $US1.29 billion, or $US4.06 per share, a year earlier.
Excluding special items, profit per share was $US5.89, beating the $US5.42 expected by analysts, according to Thomson Reuters I/B/E/S.
Growth machine
Google is still a long way off from the double-digit growth it once enjoyed, but analysts believe search advertising, which accounts for the majority of its business, will be quicker to recover from the ad slump than the display ad business that companies like Yahoo and Time Warner's AOL depend on.
"There is upside pretty much across the board in terms of revenue - US beat our estimates, international significantly beat our estimates ... and EPS beat our estimates," said Ross Sandler, senior Internet analyst at RBC Capital Markets.
But Sandler sounded a note of caution about spending at Google: "The only thing making investors cautious is that Schmidt mentioned investing heavily on our future."
Schmidt had told Reuters in September that Google expects to buy
one small company a month as it starts up its dealmaking machine
again after a breather during the worst period of the financial
crisis.
He said on Thursday that any large deals would need to have a
significant strategic rationale, such as accelerating revenue or
providing access to a "major, major" pool of customers that Google
cannot currently reach.
Besides acquisitions, Schmidt said Google planned to step up hiring and investments in new projects as its business improved and worries about the economy recede.
"We are short key technology talent to achieve some of these broader initiatives," Schmidt said.
Google said revenue from its own websites was 67% of total revenues, and a rise of 8% over a year earlier.
Revenue from outside the United States accounted for 53% of total revenues, same as in the second quarter. The Mountain View, California-based company said $US166 million of revenues was boosted by foreign exchange gains.
Cost per click - the price that advertisers pay to run ads alongside Google search results - rose 5% over the second quarter, but it fell 6% from a year earlier.
"With advertising at its core, Google is benefiting from higher bid pricing on its search. In the next two to three quarters, we'll continue to see strong fundamentals," said Laxmi Poruri, analyst at Primary Global Research.
Oppenheimer analyst Jason Helfstein agreed, saying, "This is the most efficient way for advertisers to advertise and with the economy likely getting better, Google is likely among the first to see it."
