Google beats for Q3, Wall Street looks ahead
updated: In after-hours trading, shares of Google shot up more than 11 percent within 20 minutes after the company reported strong quarterly earnings. In regular trading, shares initially declined early in the day but rallied late in the day to close up more than 4 percent at $353.02. Early headlines used words like "Blockbuster" to describe the company's quarter and some argued that, had Google reported a different picture, it could have sparked a panic about the Internet and its reliance on advertising models.
Google beat Wall Street expectations for its third quarter, reporting net income of $1.35 billion, or $4.24 a share, up from $1.25 billion, or $3.92 per share for the same quarter in 2007. Revenue was $5.54 billion, up from $5.37 billion a year ago. (statement). Excluding special charges, Google reported second quarter earnings of $4.92 per share, compared to the $4.77 a share on revenue of $4.05 billion that analysts had expected.
Google-owned sites generated revenue of $3.67 billion, or 67% of total revenue, in the third quarter, up 34% from a year ago. Google's partner sites generated $1.68 billion, a 30% increase from a year ago.
Consistent with the theme of earnings calls this week (Intel, eBay), the interest has been less focused on the performance in the third quarter but instead on the outlook for the fourth quarter and full year, given the current economic conditions. Because Google doesn't provide guidance, Wall Street is making assumptions based on other factors, including the outlook of other industries, notably automotive, financial services and retail, three of the largest ad categories and three that are all feeling the pinch of the recent Wall Street meltdown and heading into uncertain holiday and year-end seasons. Google serves as an Internet advertising barometer., leaving Wall Street to ask, "If Google can’t deliver, who can?"
In a statement, Google CEO Eric Schmidt said, “While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display.”
In a call with analysts, Schmidt said the global economic situation is far worse than anyone predicted a month ago, calling it a fluid situation that has put companies into uncharted territory. However, he said Google - like always - is managing for the long term, investing in the core search business to enhance search for greater personalization and better results, as well as more relevant ads and more sophisticated tools for advertisers. At the same time, costs will be closely watched as the company - and the globe - rides out out the economic storm.
On that same call, co-founder Sergey Brin talked about some of the highlights of the most recent quarter, including the launch of Google Chrome, the company's Web browser, as well as Android, the mobile phone OS that will hit the shelves next week in T-Mobile's G-1. He also mentioned that the integration of Double-Click is going well and that the search business is being enhanced continuously, delivering things like video alongside Web pages in the search results. In addition, he said YouTube is also experimenting with monetization models.
Finally, when asked about anecdotal evidence to illustrate the impact of global economic conditions, the company reminded that it does not issue guidance but instead pointed to some of the most popular search terms on its Google Trends site: 401(k), money market and gold, among them.