The Google bears are scurrying back into the woods. On Apr. 17, Google quelled concerns that the slowing economy would finally hurt its business. Thanks to strong international growth and better payoffs from its search ads, Google (GOOG) turned in higher profit and revenue than Wall Street had expected. The shares jumped more than 17% in post-market-close trading Apr. 17, and soared 18% to $529.17 in early trading Friday. The stock closed at $449.54 the previous session.
Google had been facing increasingly stiff headwinds during the quarter, from reports of a drop-off in ad clicks on its search results pages (BusinessWeek, 4/3/08) to increasing competition and the departures of some key executives.
But the company reported that earnings, excluding employee stock compensation, rose 30%, to $4.84 a share, higher than Wall Street estimates of $4.52 a share. Gross sales were up 42% from a year ago, to $5.19 billion, while net sales after payments to Web sites providing traffic to Google totaled $3.7 billion. Both beat analysts' expectations. "This will mean a sigh of relief from investors," says Rob Sanderson, an analyst at American Technology Research. "Google came through with a very solid quarter."
Google's Effect
Google's results add to signs that the faltering U.S. economy is having a muted impact on tech companies with growing international businesses. First-quarter results from IBM (IBM) and eBay (EBAY) were stronger than analysts had forecast (BusinessWeek.com, 4/17/08). In Google's case, overseas revenue accounts for more than half the total for the first time. Other Internet companies also rallied in the wake of Google's repost: Chinese search engine Baidu (BIDU) gained 8%, and Amazon.com (AMZN) climbed 3%.
First-quarter figures from Google may also hold clues to how another closely watched Internet company, Yahoo! (YHOO), will fare in efforts to resist an unwelcome takeover bid from Microsoft (MSFT). Better-than-expected results would give credence to Yahoo's assertion that it's worth more than the $31 a share Microsoft has offered. Yahoo reports first-quarter results on Apr. 22.
Currently "Well-Positioned"
Google CEO Eric Schmidt made clear the company expects few economic obstacles. "We do not see an impact at this time," he said in an analyst conference call. "We're well-positioned for 2008 and beyond, regardless of the business environment." Moreover, in the event "economics change," Google's targeted ads should prove even more appealing, Schmidt added, referring to the idea that companies would demand advertising with a measurable impact.
The company's bottom line also benefited as Google kept costs under control. Although the purchase of ad-serving firm DoubleClick added 1,500 people to Google's staff, for a total of 19,156, the company slowed the pace of hiring. Google hired about 850 people, much fewer than the 2,130 it brought in the peak third quarter. It also laid off 10% of DoubleClick's U.S. staff and expects 15% more to leave as the companies meld.
Responsible for Ad-Click Decline
One of the biggest concerns Google faced in the runup to its results stemmed from reports of a precipitous decline in paid clicks. Figures from market researcher comScore (SCOR) suggested paid-click growth had screeched to a near-halt, rising just 1.8% in the first quarter from a year ago. Google measures paid clicks differently than comScore, which employs a panel of Internet users to gauge clicks. By Google's count, paid clicks rose 20% from a year ago and 7% from the fourth quarter.