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Google's long-range projects appear to be paying off

By Jessica Mintz
Thursday, October 14, 2010; 9:02 PM

SEATTLE - Google's third-quarter earnings demonstrated that the Internet search leader is capable of surpassing investors' short-term expectations while still investing heavily in long-range projects.

Google reported a 32 percent jump in quarterly profit late Thursday and provided the most persuasive evidence yet that its past investments are paying off, helping it diversify away from search advertising.

Wall Street was encouraged by the results and sent shares of Google soaring almost 9 percent to $589.39 in extended trading. Before the earnings release, shares lost $2.37 to close at $540.93.

For July through September, Google's net income rose to $2.2 billion, or $6.72 per share, from $1.6 billion, or $5.13 per share, a year earlier. Excluding certain expenses, Google said it earned $7.64, topping the $6.69 analysts expected. Revenue rose 23 percent to $7.3 billion from $5.9 billion a year earlier.

Text links placed above or alongside search results are still Google's main source of revenue, but the company has laid out billions to beef up its ability to sell image-based "display" ads, ads inside Web videos and on mobile phones. The company paid $3.2 billion for DoubleClick, a display ad network, and $681 million for mobile-ad firm AdMob.

Executives indicated Thursday that display advertising accounted for nearly 10 percent of ad revenue in the quarter, and mobile advertising was almost 4 percent.

Those successes could help calm investors worried about Google's insistence on spending more despite ongoing pessimism about the economy.

The Web search leader added 1,500 workers in the quarter, for a total of 3,500 new employees so far this year. Capital expenditures - what Google pays for data centers, servers and networking equipment to keep its growing number of Web services online - increased more than fourfold to $757 million from $186 million a year earlier.

Google is known for making long-shot investments. This week, some of its strangest projects yet came to light: It is dabbling in wind farms and computer-driven cars.

During a conference call with analysts, Google Chief Financial Officer Patrick Pichette left no doubt that such investments would continue, saying, "We're on this growth agenda at full throttle."

Google, which is based in Mountain View, Calif., said its average cost per click rose 3 percent from a year ago, meaning companies paid more to place ads. People clicked on ads 16 percent more than they did in the same period last year.

During a conference call with analysts, Google said sales of its display ads, which include those on YouTube, are on a pace that would translate to $2.5 billion annually. Its mobile advertising businesses are on pace to bring in $1 billion in revenue annually. The figures are the most specific Google has released about the two emerging businesses.

- Associated Press

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