Google Profit Jumps on Market Share Gains From Yahoo

Google Inc., owner of the most- popular Internet search engine, said third-quarter profit jumped 46 percent, beating analysts' estimates, after the company sold more advertisements on the Web and its YouTube video site.

Net income rose to $1.07 billion, or $3.38 a share, from $733.4 million, or $2.36, a year earlier, Google said today in a statement. Sales advanced 57 percent to $4.23 billion.

Google has reported sales growth of more than 50 percent in all of its 13 quarters as a public company, spurred by search query gains from Yahoo! Inc. and Microsoft Corp. Mountain View, California-based Google handled four times more global queries than Yahoo in August, according to ComScore Networks Inc.

``They're still looking good across the board,'' said Erick Maronak, chief investment officer at Victory NewBridge Capital Management in New York, which oversees $1.3 billion including Google shares. ``It's hard to really come across a company that's at the intersection of such big trends.''

Excluding stock-based compensation costs, profit was $3.91 a share, topping the $3.78 average estimate of analysts in a Bloomberg survey. Revenue, excluding sales passed on to partner sites, rose to $3.01 billion, beating the average estimate of $2.94 billion.

Google shares rose $8.51 to $648.13 in extended trading. The shares gained $6.14 to $639.62 at 4 p.m. New York time on the Nasdaq Stock Market and have advanced 39 percent this year.

Beating Estimates

``It's obvious to us that our model continues to work very well,'' Chief Executive Officer Eric Schmidt said on a conference call with analysts.

Schmidt, 52, has now beaten analysts' profit estimates in all but two of Google's earnings reports. The stock passed $600 this month, buoyed by Google's market-share gains and advertisers shifting more spending to the Web.

Three months ago, Google reported profit that missed analysts' estimates because the company increased spending on research and hired more workers.

``It's nice to see them back on track, delivering earnings above expectations,'' said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

Hiring Plans

The company added 2,130 employees in the quarter, bringing its total to 15,916. Schmidt said some of these employees represent an ``overhang'' from previous agreements and that the company is paying close attention to its hiring plans.

Revenue on Google's own sites climbed 68 percent to $2.73 billion, while sales on partner sites gained 40 percent to $1.45 billion. Capital spending rose to $552.6 million from $492.2 million a year ago.

To sustain growth, Google began selling ads in video clips on YouTube during the quarter, and this month started offering Web sites a way to run clips and related ads alongside articles. The company bought YouTube for $1.65 billion last year.

``We're surprised at the number of people willing to experiment with these new formats,'' Vice President Marissa Mayer said in an interview yesterday at the Web 2.0 conference in San Francisco. ``They ultimately will be very large businesses.''

Mobile Ads

Google is also trying to extend its ads beyond personal computers to mobile handsets. Last month, the company introduced a version of its AdSense software for mobile-phone Web sites, letting them show ads relevant to their content.

Yahoo, owner of the most-visited U.S. Web site, reported profit two days ago that beat analysts' estimates on higher sales of display ads. That lifted expectations for Google. Of 38 analysts who follow Google's stock, 34 recommend buying it and four say hold.

Google accounted for 61 percent of global search queries in August, ahead of Yahoo's 14 percent and Microsoft's 4 percent, according to Reston, Virginia-based ComScore. In the U.S., Google had 57 percent of the market in September, compared with 24 percent for Sunnyvale, California-based Yahoo and 10 percent for Redmond, Washington-based Microsoft.

That dominance helped Google generate cash of $3.36 billion in the previous three quarters, 2.6 times more than Yahoo over the same period, according to data compiled by Bloomberg.

Google has a policy of not forecasting profit, a practice the company says prevents it from finessing earnings to meet analysts' expectations.