Google seen proving its price is right
Posted on Saturday, October 20, 2007
SAN FRANCISCO — Less than two weeks after its stock price jumped past $ 600 for the first time, Google Inc. showed why it might not be long before the Internet search leader’s shares are flirting with $ 700.
Even with more people enjoying the summer weather instead of surfing the Web, Google churned out another quarter of strong earnings and revenue growth.
The third-quarter results, released Thursday, surpassed analyst expectations and demonstrated why Google has emerged as Silicon Valley’s most prized company with a market value of more than $ 200 billion after just nine years in business.
“We’re strong and getting stronger,” Google Chairman Eric Schmidt said in an interview Thursday. “What I am most pleased about is our model works.”
Investors are happy too. Google shares surged to a new high of $ 658. 49 in Friday’s morning trading before dropping back to a close of $ 644. 71, up 5 percent for the day.
Google said Thursday that it earned $ 1. 07 billion, or $ 3. 38 per share, for the three months ended in September. That was a 46 percent improvement from net income of $ 733. 4 million, or $ 2. 36 per share, at the same time last year.
The healthy jump thrust the Mountain View-based company’s market value even further ahead of Cisco Systems Inc. ’s in Silicon Valley’s pecking order.
Microsoft Corp., which started when Google co-founders Larry Page and Sergey Brin were still toddlers, is now the only hightech company worth more than the Internet search leader.
As it has been for several years, Google reaped the benefits of running the Internet’s most popular advertising network as more marketing dollars shift to the Web from television, radio, newspapers and magazines.
Meanwhile, long-established media are suffering. For instance, third-quarter advertising revenue at three major newspaper publishers — Gannett Co., McClatchy Co. and Dow Jones & Co. — declined by a combined $ 125 million, or 6 percent, from the same period last year.
Chris Winfield, who runs the search engine ad firm 10 e 20, says Google has become the Internet’s equivalent of The Beatles during that rock group’s heyday in the 1960 s. “It’s pretty amazing. It’s almost like they are in control of the world.”
If not for the cost of awarding stock to its steadily expanding work force, Google said it would have earned $ 3. 91 per share. That topped the average estimate of $ 3. 78 per share among analysts surveyed by Thomson Financial.
Revenue for the third quarter totaled $ 4. 23 billion, a 57 percent increase from $ 2. 69 billion last year.
After subtracting commissions paid to its thousands of advertising partners, Google’s revenue stood at $ 3. 01 billion — about $ 70 million above the average analyst estimate.
The performance represented a return to form for Google after its second-quarter earnings disappointed Wall Street. The company has surpassed analyst estimates in all but two of the 13 quarters since its August 2004 initial public offering. As a result, Google’s stock price has increased more than sevenfold since the IPO.
RBC Capital Markets analyst Jordan Rohan is among those who still sees plenty of upside in the stock. After digesting Google’s third-quarter results, he raised his price target for the shares to $ 725, up from $ 690 previously.
Oppenheimer & Co. analyst Sandeep Aggarwal went even further Friday by predicting Google shares will soon climb to $ 745 just a week after he raised his target to $ 700.
Although it relies on complex technology, Google’s business formula is fairly simple. As it processes a search request, Google also scans its database for text-based ads related to the same topic as the query and displays the commercial messages along the side and top of the results page.
Google gets paid when someone clicks on an ad on its pages or on one of its partners’ sites.
There’s ample opportunity to display ads, with Google fielding about 1. 2 billion search requests worldwide per day, based on the latest data from comScore Inc. That’s more than quadruple the number of requests handled by Yahoo Inc..
While becoming even more dominant in search, Google also is branching in new directions that are creating new ways to sell ads and opening up potential new revenue channels in the software applications market.
In the past few months, Google unveiled a way to show text-based ads across the bottom of videos supplied by its YouTube subsidiary and also began distributing ads within “widgets” — the interactive capsules that are becoming Internet staples.
In a sign of its ambitious expansion plans, Google added another 2, 130 employees in the third quarter — more than in any threemonth period in its history.
As of Sept. 30, the company’s payroll totaled 15, 916 people, including hundreds who have become millionaires.
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