Google Inc profits surpassed Wall Street quarterly forecasts, sending its shares up more than 10 percent as the Internet search and advertising leader held deepening economic gloom at bay. Web traffic and revenue growth were strong in all major parts of the world and searches were up for almost every industry using Google, Chief Executive Eric Schmidt said.
But with uncertainty widespread among global business leaders, government officials and media commentators over where the economy is headed, Google is unsure what impact this could have on its advertising dependent business, the CEO said.
Google added just over 500 employees in the quarter, about half of them engineers, taking total staff to about 20,000, and the company said it would continue to hire, but cautiously. Relieved investors said Google appeared to be alone in its ability to weather the economic storm.
Net income for the third quarter rose to $1.35 billion, or $4.24 a diluted share, from $1.07 billion, or $3.38 per share. Excluding employee stock compensation costs and one-time items, profit rose to $4.92 per diluted share and topped Wall Street's target of $4.75, according to Reuters Estimates.
Revenue, including commissions paid to affiliated advertising sites, totalled $5.54 billion, up 31 percent from the year-earlier quarter but up only 3 percent from the second quarter of this year. The results were powered by international sales, which rose 41 percent. This came despite the fact that Britain, Google's second largest market, "showed some softness" with 17 percent growth from a year ago but flat compared with the June quarter, Google officials said.
Revenue fell squarely in the middle of forecasts calling for an increase of 26 percent to 37 percent, signalling the company's decelerating growth. Revenue had risen 57 percent in the 2007 third quarter over the same 2006 period. The company dramatically cut back on purchases of property and equipment to $452 million for the quarter ended in September from $697 million in the June quarter.
Google continues to generate cash at one of the fastest rates in the Internet industry. It had $1.73 billion in free cash flow in the third quarter, up 60 percent both from the year-earlier quarter and the quarter ended in June. Google's stock had fallen by more than half this year as investors have anticipated that the company's pay-per-click advertising format would be caught in the year-long slump in the wider advertising market.