Profit Seven Times Higher Than Last Year

Profit Seven Times Higher Than Last Year

October 22, 2005

Google's 3rd-Quarter Profit Seven Times Higher Than Last
Year, Blowing Past Analyst Expectations

SAN FRANCISCO (AP) -- Google Inc.'s rapidly rising profits
soared to new heights in the third quarter as its
Internet-leading search engine churned out a sevenfold
earnings increase that blew past analyst expectations.
The Mountain View, Calif.-based company said Thursday that
it made $381.2 million, or $1.32 per share, during the
three months ended in September. That compared with net
income of $52 million, or 19 cents per share, a year ago.
Last year's results included a $201 million charge to
account for a legal settlement with rival Yahoo Inc.

If not for charges related to a recent acquisition and
employee stock options issued before the company went
public 14 months ago, Google said it would have earned
$1.51 per share.

That figure easily exceeded the consensus estimate of $1.36
per share among 31 analysts surveyed by Thomson Financial.
Even the most bullish analysts hadn't expected Google to
fare as well as it did; the highest earnings estimate had
been $1.46 per share.

Google's revenue for the quarter totaled $1.58 billion,
nearly doubling from $805.9 million last year. After
subtracting the commissions that Google paid to other Web
sites in its advertising network, the revenue stood at
$1.05 billion, exceeding the Wall Street estimate of $944
million.

The results were released after the stock market closed
Thursday. Google's shares fell $5.50 to close at $303.20 on
the Nasdaq Stock Market, then surged by $32.55, or 10.7
percent, in extended trading.

"We surprised ourselves this quarter," Google CEO Eric
Schmidt said during a Thursday interview. "Business was
much stronger than I expected."

The profit -- the highest for any three-month period since
Google's inception seven years ago -- came during a
typically slow season for Internet companies because people
spend less time at their computers during the summer.

Google executives also had warned that it might be
difficult for the company to post substantial increases
from last year's third quarter when a flood of publicity
devoted to its August 2004 initial public offering helped
drive more traffic to its Web site.

But the introduction of new products, such as instant
messaging, and upgrades to existing services, such as
mapping, helped Google attract more summer traffic than
anticipated, executives said during a Thursday conference
call.

"We are effectively connecting with users and customers in
relevant ways," Schmidt said.

Excluding ad commissions, Google's third-quarter revenue
growth accelerated by 18 percent from the second quarter.
Not even the most bullish analyst believed Google's
sequential revenue increase would be above 10 percent.

Even as the company diversifies, Google's online search
engine remains the company's moneymaking hub, shrugging off
stiffening competition from its biggest rivals, Yahoo and
Microsoft Corp.

Google handled 45 percent of U.S search requests in
September, outdistancing 23 percent for Yahoo and 12
percent for Microsoft's MSN, according to research released
Thursday by Nielsen/NetRatings.

As an ever-growing audience flocks to Google's search
engine to find information, more advertisers want to have
their Web links displayed alongside search results related
to their products and services.

The increased ad demand is enabling Google to boost its
profit at a breathtaking pace -- something it needs to do
to support the lofty price of its stock, which has more
than tripled since the company's IPO.

Based on Thursday's extended trading, Google's shares could
easily eclipse their all-time high of $321.28 on Friday.

In its quest for more profit, Google wants to build a free
high-speed wireless Internet access service in San
Francisco to ensure more people in that city can connect to
its search engine and, theoretically, click on its ads. If
San Francisco picks Google's proposal over 25 others, the
company plans to begin building the wireless network
immediately, Schmidt said.

Google also has teamed up with Comcast Corp., the nation's
largest cable company, to explore buying a minority stake
in Time Warner Inc.'s AOL. Yahoo and Microsoft also are
stalking AOL, an alliance that would hurt Google because
AOL is its biggest advertising partner.

Schmidt deflected analyst questions about the AOL courtship
during Thursday's conference call. "They are a very, very
valued partner and we hope it will be true forever," he
said.

Google's growth is helping to fund a steady expansion of
its work force. The company hired another 806 employees
between June and October, expanding its payroll to just
under 5,000 workers