Google profit doubles in quarter

SAN FRANCISCO - Web search leader Google on Thursday announced its quarterly profits had doubled, as the company dodged the slowing growth trend that has hurt rivals Yahoo and eBay.

The results, which significantly beat market expectations, sent Google's shares up nearly 2 per cent in after-hours trade.

Second-quarter net income rose to US$721 million ($1.2 billion) , or US$2.33 per diluted share, compared with the year-earlier quarter's US$343 million, or US$1.19 per share. That beat analysts' consensus estimate of US$1.95 a share, according to Reuters Estimates.

Revenue rose 77 per cent to US$2.46 billion. Wall Street was looking for revenue, on average, of US$2.40 billion. Forecasts ranged between US$2.30 billion and US$2.52 billion, according to Reuters Estimates.

"Overall the revenue came in certainly better than what I had been looking for and, I believe, certainly with respect to revenue relative to Street expectations," said David Garrity, analyst at Dinosaur Securities.

"The fact that you have got that kind of growth coming from overseas, where it's mostly going through Google's own network, probably can be seen as positive."

Excluding one-time items and stock-based compensation expenses, the Mountain View, California-based company reported a profit of US$2.49 per share. On that basis, analysts had forecast US$2.22 a share.

The company said it paid out traffic acquisition costs of US$785 million, or 32 per cent of advertising revenues, to affiliated websites that drive customers to view Google ads.

"We're very, very happy with having such a strong quarter in a seasonally weak period for us," Chief Executive Eric Schmidt told investors on a conference call to discuss the results. He added "it looks like our model continues to work extremely well."

Google's stock rose US$6.91, or 1.8 per cent, in after-hours trade, after jittery investors drove the stock down 3 per cent to US$387.12 in regular session trading on Nasdaq ahead of the results. The stock has lost 8 per cent so far this year.

"At this level, Google is pretty attractively valued," said Global Crown Capital analyst Martin Pyykkonen.

Google shares hit a peak of US$475 in January before investor concerns about maturing growth in the industry, and the need by Google and others to spend more on product development, led the stock lower.

On Thursday, the company reaffirmed that it will invest at a considerably higher rate in computers, networks and data centers than its expected rate of revenue growth in 2006.

Debate is raging over whether Google - which enjoys growth rates three-to-four times faster than other major internet companies - is vulnerable to slowing industry growth trends or is itself a disruptive force taking share from rivals.

On Tuesday, Yahoo posted second-quarter profit in line with expectations but postponed an upgrade to an advertising system designed to compete with Google, and its shares suffered its biggest one-day percentage decline ever.

"Margins are a little bit better on at-consensus revenue growth," said Pyykkonen, who added that the margin improvement may be explained by more favorable tax rates.

"What the (revenue number) implies is that maybe they didn't take as much market share as was presumed from Yahoo's numbers the other day," Pyykkonen said.

- REUTERS