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FISHRGAME
_____________
Feature
Stories -
062005-06
/ Week tviNews
Convergence
Todays Puzzle
-- The reasons for Google's big profits
#110Big
Profits For Google
Stockholders05
SAN FRANCISCO -- Google Inc.
said Tuesday that profit soared nearly eightfold as
it wrung more money out of advertisers in the
fourth quarter.
Google shares jumped nearly
10% to a record $210.30 -- 147% above the initial
public offering price of $85 in
August.
Mountain View, Calif.-based
Google reported a fourth-quarter profit of $204
million, or 71 cents a share, compared with $27
million, or 10 cents, in the same quarter of 2003,
when it was closely held. Sales doubled to $1
billion and surpassed even the most bullish
analysts' predictions for the quarter, Google's
second since its IPO.
For the full year, profit was
$399 million, compared with $106 million in 2003.
Revenue doubled to $3.2 billion, with half coming
from ads on Google websites and half from ads on
the websites of partners such as Time Warner Inc.'s
America Online.
The company said it had
attracted more people to its stable of websites and
was getting better at making sure they saw tempting
ads. Google's text-based ads generate revenue only
when users click on them.
"This is the second quarter in
a row that analysts have dramatically
underestimated the company," said Scott Kessler, an
analyst at Standard & Poor's. "They're
executing in a way that I don't think most people
would have imagined."
Excluding the money Google
shared with website operators that ran targeted
ads, the company's sales were $654 million. That
was $61 million more than the consensus expectation
of 19 analysts polled by Thomson First Call and $28
million more than the top
forecast.
Because the company is growing
fast and its executives won't issue revenue or
profit forecasts, financial results are especially
hard to predict.
Google shares, which fell
$3.72 to $191.90 in regular Nasdaq trading, shot up
after hours after the earnings
announcement.
"It's obvious to me we are
benefiting from the shift of less targeted
[advertising] to more targeted," Google
Chief Executive Eric Schmidt said. "We are a small
player in a very big
market."
That market is rapidly
expanding, and competitors such as Yahoo Inc. and
Microsoft Corp. want to slow Google's growth. To do
that, they're investing some of the cash generated
by their other businesses to attack Google's
dominance in search
engines.
Yahoo's share of all Web
searches in the United States crept up to 31.9% in
December, from 27.1% a year earlier, according to
market researcher ComScore Networks. Google fell
slightly, to 34.7%.
As for Microsoft, it released
its own search engine Tuesday and vowed to spend
heavily on advertising -- including spots during
the Super Bowl and the college basketball
tournament -- to increase its search market share
of 16.3%.
But Schmidt said Google
wouldn't abandon the approach of relying on word of
mouth.
"We've not found a need to
change the way we market our products or services,"
he said.
RBC Capital Markets analyst
Jordan Rohan said Google's profit margins were on
the rise thanks to growth overseas. "International
markets are reaching critical mass, both of users
and advertisers," he
said.
During a conference call with
Google executives, analysts questioned the
company's strategy of giving away many products --
such as its photo-sharing service, Picasa --
without plastering them with ads or charging
subscription fees.
They also expressed concern
about the lack of diversity in Google's revenue
stream compared with competitors. Yahoo sells
banner ads and Microsoft has a cash cow in its
Windows operating system, but Google would have
little to fall back on if the market for
search-related advertising slowed
dramatically.
"That's a concern that'll
always be there," said Youssef Squali, an analyst
at Jefferies & Co. "The other side of the coin
is that pure-plays always grow faster than
diversified companies in the growth phase of an
industry."
///
------------------------------------------------------------------------
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///
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