Google Profit Jumps 26 Percent

By Kim Hart
Washington Post Staff Writer
Friday, October 17, 2008

Search giant Google beat analyst estimates yesterday when it reported a 26 percent increase in third-quarter profit, bolstering the company's claim that online advertising will hold up in a slowing economy.

The Mountain View, Calif., company said its profit reached $1.35 billion in the third quarter, or $4.24 a share, compared with $1.07 billion, or $3.38 a share during the corresponding period a year ago.

Total revenue increased 31 percent, to $5.54 billion. After subtracting advertising commissions, Google's net revenue rose 34 percent, to $4.04 billion, which is about $20 million below the average analyst estimate.

Excluding costs for employee stock compensation, Google said it would have made $4.92 per share, surpassing the average estimate of $4.75 per share among analysts polled by Thomson Reuters.

Stanford Group analyst Clayton Moran said the solid third quarter is a good sign for Google but not necessarily for its competitors. Google is gaining market share and has the strongest brand for advertisers, he said, making it "well-positioned to weather the economic storm."

"But uncertainty will still linger, and that, to some extent, will keep a lid on its stock as investors are rightly cautious," Moran added.

Google chief executive Eric Schmidt said the company would "keep a close eye on costs" going forward. While he said that he was confident advertisers and consumers would continue to use Google's tools, he acknowledged that the financial crisis is much more severe than what was predicted a month ago.

"We are in uncharted territory," he said.

Broader market pessimism and the expectation that companies would slash advertising budgets has pummeled Google's stock, which recently fell to its lowest point in more than two years.

The growth of online advertising budgets has already started to slow, according to the Interactive Advertising Bureau. Second-quarter online advertising revenue grew 12 percent, a drop from 25 percent last year

Todd Greenwald, senior analyst for Signal Hill Research in Baltimore, said the true test of Internet firms' resilience lies ahead.

"There has already been a ton of pain" in the Internet sector, he said, citing the 14 percent drop in eBay's shares this week, and a 15 percent slide for Amazon.

"It's going to be a tough time as everything gets rationalized and expectations come down," he said.

Google shares rose $13.85, or 4 percent, closing at $353.02.

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