Google's Profit Jumps 46 Percent, Sets Record

Google again posted record earnings yesterday as the company continues to gobble up search and online advertising market share.

The online ad market has been growing steadily over the past year, but analysts say Google has been lapping the competition because of the increasing popularity of its search function and corresponding growth in search-based ads. This news comes as such rivals as Yahoo and Microsoft are concerned about Google's dominance, particularly with its proposed acquisition of DoubleClick on the horizon.

"Microsoft has a tremendous amount of resources, and Yahoo has a tremendous amount of users, so they remain formidable competition," said Clayton F. Moran, an analyst at Stanford Group in Boca Raton, Fla. "All that being said, Google's winning the battle."

Google, of Mountain View, Calif., said yesterday that its profit was $1.07 billion ($3.38 per share) for the three months ended Sept. 30, an increase of 46 percent over the comparable period in 2006, when the company's profit was $733 million ($2.36). Revenue rose to $4.23 billion from $2.69 billion.

The company's stock rose $6.14, to $639.62 yesterday before the earnings announcement, completing a run-up of more than $100 a share over the past month. Shares first broke the $600 mark Oct. 8.

Executives at Google attributed the increase in earnings to its new forms of advertising -- cellphone ads, interactive ads that function like games and television ads -- which are supplementing the company's text-based ad business.

"The kinds of new formats we're talking about are in various stages of testing or have just been released now," Sergey Brin, Google co-founder and president of technology, said in an interview yesterday. "They're not going to make a huge impact on revenue for some time, but we're certainly optimistic."

More than half of all U.S. search queries in August were conducted through Google, according to Nielsen Online. While users don't pay Google anything for its search service, the popularity of its search engine has helped make it the leader in online advertising, particularly through its text ads based on search terms. Google owns 28.9 percent of the Internet ad market, nearly twice the share of its next-biggest rival, Yahoo, according to estimates from market research firm eMarketer.

Yahoo reported a year-over-year quarterly earnings decline of 5 percent on Tuesday.

The online advertising market continues to grow, according to a recent report by the Interactive Advertising Bureau, which found that U.S. Internet advertising revenue for the first six months of 2007 was nearly $10 billion, nearly 27 percent more than in the first half of 2006. Online advertising makes up an estimated 7 percent of the overall advertising market and continues to take market share away from TV, print and radio advertising, according to New York-based Cowen & Co. analyst Jim Friedland.

Some analysts say Google stands to outpace the growth of the overall online ad market.

"We're expecting Google's growth in online ads to be double the overall online ad market growth this year," Moran said.

The other bells and whistles that Google has added in recent months, including improvements to Google Earth, have strengthened Google's brand name but do not appear to be generating much revenue.

"Those are neat things, and you gotta like them as a consumer," said Brian Bolan, analyst at Jackson Securities in Chicago. "But I think the monetization and the actual effect of that felt on the earnings situation is some time off."

Google benefited from its overseas growth in services such as mobile phone ads that are common in Asia, especially since the dollar has been weakening.

"All in all, things have been going Google's way," Bolan said.

In addition to the record profit posted for the third quarter, anticipation of some moves by Google -- including a rumored mobile phone product and new ways to make money from videos on YouTube -- continue to drive up stock prices, analysts said.

"Google's really more interested in growing the market," Brin said. "It's not about grabbing market share from competitors. That's a pretty limited strategy."