Google Rides Ad Wave to Sparkling 3Q

Google CEO Eric Schmidt gestures during a news conference in San Jose, Calif,. Aug. 9, 2006. Google Inc. reports earnings for the fiscal third quarter on Thursday, Oct. 18, 2007. (AP Photo/Paul Sakuma) (Paul Sakuma - AP)

After subtracting commissions paid to its thousands of advertising partners, Google's revenue stood at $3.01 billion _ about $70 million above the average analyst estimate.

The performance represented a return to form for Google after its second-quarter earnings disappointed Wall Street. The company has surpassed analyst estimates in all but two of the 13 quarters since its August 2004 initial public offering. As a result, Google's stock price has increased more than sevenfold since the IPO.

Although it relies on complex technology, Google's business formula is fairly simple. As it processes a search request, Google also scans its database for text-based ads related to the same topic as the query and displays the commercial messages along the side and top of the results page.

Google gets paid when someone clicks on an ad on its pages or on one of its partners' sites.

There's ample opportunity to display ads, with Google fielding about 1.2 billion search requests worldwide per day, based on the latest data from comScore Inc. That's more than quadruple the number of requests handled by Yahoo Inc., which runs the second-largest search engine.

"The Google machine continues to run pretty smooth," said Cantor Fitzgerald analyst Derek Brown. Like many analysts, Brown is trying to figure out just high Google's stock can go. Brown set a $650 price target for the shares last December when they were still hovering around $460.

While becoming even more dominant in search, Google also is branching in new directions that are creating new ways to sell ads and opening up potential new revenue channels in the software applications market.

In the past few months, Google unveiled a way to show text-based ads across the bottom of videos supplied by its YouTube subsidiary and also began distributing ads within "widgets" _ the interactive capsules that are becoming Internet staples.

In a sign of its ambitious expansion plans, Google added another 2,130 employees in the third quarter _ more than in any three-month period in its history. Management said the summer additions included about 1,000 hires right out of college and 300 employees inherited in its $625 million acquisition of e-mail specialist Postini Inc.

Schmidt assured analysts that Google is closely monitoring the size of its work force and indicated the hiring will be more modest in the current quarter.

As of Sept. 30, the company's payroll totaled 15,916 people, including hundreds who have become millionaires.