Strong Google Earnings Point to Online Ad Revival

Search giant tops analysts' expectations for first-quarter earnings as ad spending begins to recover.

Buoyed by a resurgence in advertising spending, Google (NASDAQ: GOOG) today reported earnings for the first quarter that handily beat Wall Street estimates.

The search giant posted first-quarter sales of $5.06 billion, topping analysts' estimate of $4.95 billion, according to polling by Thomson Reuters. Overall revenues checked in at $6.78 billion, a 23 percent surge over the same quarter last year.

Those figures translating into a healthy profit for the company, which reported non-GAAP earnings of $6.76 per share, topping analysts' forecast of $6.58, and surging 24 percent ahead of the year-earlier mark of $5.16.

"Google performed very well in the first quarter, with 23 percent year-over-year revenue growth driven by strength across all major verticals and geographies," CFO Patrick Pichette said in a statement. "Going forward, we remain committed to heavy investment in innovation -- both to spur future growth in our core and emerging businesses as well as to help build the future of the open Web."

Google's vault ahead of both the Street's expectations and its earnings in the comparable quarter last year come as the latest sign of health in the online advertising sector, where Google more than any other company serves as a bellwether.

Several recent market analyses and forecasts have painted a consensus picture that digital advertising is on the rebound, projecting accelerating growth in the search, display and video sectors.

For Google, those signs of recovery had become strong enough last year that when the company reported its third-quarter earnings in October, it announced plans to start hiring again and resume acquiring smaller companies at an aggressive rate, roughly at the rate of one a month.

So far this year, Google has outstripped that pace, having announced the acquisition of six startups, with the latest coming earlier this week in the form of Plink, a U.K. firm specializing in visual search technology for mobile devices.

"We are continuing to invest heavily in people, products and in acquisitions," Pichette said on a conference call with financial analysts.

"We expect to continue hiring aggressively throughout the year," he added, noting that most of the positions Google is looking to fill are in its engineering and sales divisions.

But Google's largest acquisition in the mobile space, the $750 million purchase of AdMob, remains under regulatory review.

CEO Eric Schmidt has made it clear on several occasions that Google is looking to mobile as the next major area of growth for the company. The AdMob buy would give Google one of the largest mobile ad networks, which has given antitrust authorities at the Federal Trade Commission pause.

But Schmidt has also noted Apple's recent foray into the mobile ad sector as evidence of a "highly competitive market." With the launch of the iAd ad platform, Apple (NASDAQ: AAPL) deepened the growing rivalry of the two Silicon Valley titans, companies that already compete in handsets, browsers and operating systems.

Company officials touted the success of the Android platform, noting that the operating system now powers 34 devices that collectively are seeing more than 60,000 sales and activations each day. They said that the Nexus One, the smartphone that Google is marketing directly to consumers, is a profitable business, but declined to divulge specific figures.

Some analysts on the call asked about Google's precarious situation in China, where it recently announced it would offer unfiltered search results to the mainland populace by redirecting traffic to its servers in Hong Kong, beyond the reach of Chinese censorship laws. The executives had little new to offer about the situation, saying only that they remained committed to what they described as a principled stand for an unfettered Web, and reminding analysts that Google's relatively small Chinese business was "immaterial" to the company's overall financial prospects.

Asked about Google's deal with News Corp. to power the advertising on the MySpace social networking site, Pichette told analysts, "We're in the negotiations right now," adding somewhat noncommittally that Google is "always looking for partners."

But MySpace is hardly the powerhouse that it was in August 2006 when the deal was signed, having been long ago eclipsed by rival Facebook. Without offering any specifics about the negotiations, Pichette hinted that any renewal would come with sterner terms from Google, reminding analysts that the original deal was "done a number of years ago with completely different industry dynamics."

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.




Tags: Google, earnings, economy, advertising, online advertising


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