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FISHRGAME
_____________
Feature
Stories -
062005-06
/ Week tviNews
Convergence
Todays Puzzle
--
Big
Profits For Google
Stockholders
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."
///
------------------------------------------------------------------------
NEWS
CONVERGENCE
Center
Page /
Feature-//
#110
Microsoft's Today's Puzzle - it's already A Search
Engine?
For example, Microsoft Search
includes a feature called "Instant Answers." It
taps MSN Music and Encarta, an encyclopedia
program, to answer more than 1.4 million direct
questions, such as, "Who won the 1977 Super Bowl?"
(Answer: Oakland Raiders.) Ask Jeeves Inc. offers a
similar feature
The software giant plans to
unveil its own engine today to compete against
Google and Yahoo for online ad
dollars
Just days after Bill Gates
acknowledged Microsoft Corp. was "stupid" for not
recognizing the importance of Internet search
engines sooner, the software giant today plans to
debut one of its own.
Microsoft will move its new
search engine to the front page of its MSN service,
trying to keep Web surfers - - and the advertising
dollars that accompany them - - from heading to
such rivals as Google Inc. and Yahoo
Inc.
Advertisers spent nearly $3.9
billion placing targeted ads beside search engine
results last year, about 40% of the $9.5-billion
market for online advertising, according to
research firm EMarketer Inc. Revenue from such text
ads, which advertisers pay for only when someone
clicks on them, is expected to grow 22.5% this
year.
Redmond, Wash.-based Microsoft
is starting by trying to keep the hundreds of
millions of people across the world who already use
Hotmail or MSN services from heading elsewhere to
conduct searches. Although Google and Yahoo have
significant leads, search engines will evolve so
much in coming years that Microsoft has time to
catch up if it makes the right moves, said Charlene
Li, an analyst with Forrester
Research.
"They don't need to beat
Google - - they just need to be in the game right
now," she said.
Yahoo had powered Microsoft's
search engine, but analysts said building one from
scratch lets Microsoft integrate its products and
services.
For example, Microsoft Search
includes a feature called "Instant Answers." It
taps MSN Music and Encarta, an encyclopedia
program, to answer more than 1.4 million direct
questions, such as, "Who won the 1977 Super Bowl?"
(Answer: Oakland Raiders.) Ask Jeeves Inc. offers a
similar feature.
Gates has used the World
Economic Forum in Davos, Switzerland, to vent his
frustration about the progress of Microsoft's young
rival, Google. Last year he said Google "kicked our
butts." At this year's event, when asked how
Microsoft had missed the boat on Internet search
despite its enormous research budget, he replied,
"We were stupid as hell." But he said the search
industry was in its early days, and he vowed to
catch up.
Gates was more subdued when
asked in an e-mail interview about the competitive
threat.
"There is still a lot of
opportunity for us and others to deliver
breakthrough search technology innovations to
customers," he said. "We're focused on solving some
of the hardest search problems with great
software."
///
TIMELINE:
Top Stories To Start The Week
With:
///
ByLines:
Editors Note
#110BezosAmazonMoneyReport
-
February 3, 2005 -
A one-time tax-related benefit helps
boost net income. It warns of thinning margins in
2005 amid discounts
Despite strong holiday
sales, online retailer Amazon.com Inc. on Wednesday
reported fourth-quarter earnings that disappointed
Wall Street and warned of thinning margins in the
year ahead.
Shares fell 14% in
after-hours trading.
For the three months
ended Dec. 31, Amazon's profit climbed to $346.7
million, or 82 cents a share, compared with $73.2
million, or 17 cents, in the same period a year
ago. Sales rose 31% to $2.54
billion.
But much of Amazon's
profit growth stemmed from a one-time tax-related
benefit of $244 million. Excluding that, the
Seattle-based company earned $149 million, or 35
cents a share -- 5 cents lower than the consensus
estimates of analysts polled by Thomson First
Call.
For all of 2004,
Amazon's net income was $588.5 million, or $1.39 a
share, compared with $35.3 million, or 8 cents, the
year before. It was Amazon's second profitable year
since the company opened its virtual doors in 1995.
Sales rose 32% to $6.92
billion.
Although Amazon
executives forecast sales growth of 18% to 27% in
2005, they cautioned that margins probably would
erode as the company continued to discount
merchandise and offer cheap
shipping.
The problem, said Legg
Mason Wood Walker Inc. analyst Scott Devitt, is
increased competition for online buyers.
Amazon, he said, is "in
a price war. Traditional retailers are increasingly
making their prices competitive with online. And
there are an increasing number of small online
retailers that in aggregate become a competitive
force. Amazon is in the middle, getting squeezed by
both of them."
Amazon shares fell 60
cents, or 1.4%, to $41.88 in regular Nasdaq
trading. After the earnings announcement, they sank
to $35.60 in after-hours
trading.
Investors are apparently
growing impatient with Amazon, which has fallen
short of analysts' expectations for the last three
quarters.
"It was a very strong
quarter on an absolute basis," said Tim Ghriskey,
who oversees $650 million -- including Amazon
shares -- at Solaris Asset Management. "But
expectations were for much higher
earnings."
Company executives
offered little hope that margins would improve in
2005, saying they expected higher costs to
inaugurate a search engine and to implement a new
shipping price break.
The shipping program,
called Amazon Prime, will cost customers $79 a
year. For that they get free second-day
shipping.
Chief Executive Jeff
Bezos said in a conference call to analysts that
making shipping "a fixed cost allows people to
[buy] without guilt."
///
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