Google: The anti-Yahoo
World's top search engine reports 2nd quarter results that top expectations; stock is edging up after hours.
By Paul R. La Monica, CNNMoney.com senior writer
July 20 2006: 4:34 PM EDT
NEW YORK (CNNMoney.com) -- Google, unlike its top rival Yahoo, reported better than expected results for the second quarter Thursday thanks to strong demand for online search advertising. But will that be enough to impress fickle investors?
Sales for the Mountain View, Calif.-based Google came in at $2.46 billion, an increase of 77 percent from a year ago.
Wall Street's love affair with Google has cooled in recent months, but the stock is still up substantially since the company went public nearly two years ago.
After deducting traffic acquisition costs (or TAC) that the company shares with advertising partners, Google reported revenue of $1.68 billion, better than Wall Street's consensus estimate of $1.65 billion in sales, excluding TAC.
The company posted net income of $721 million, or $2.33 a share, up 110 percent from the same period last year.
Excluding the cost of stock-based compensation and some other charges, earnings came in at $2.49 a share. That was well ahead of the $2.22 per share that analysts had forecast for the company on that basis.
Shares of Google (Charts) initially dipped about 2 percent in after-hours trading on the news, but rallied a bit and were recently up about 3 percent after the close. The stock fell 3 percent in regular trading on the Nasdaq Thursday.
The stock, which surged 115 percent in 2005, its first full year as a public company, has been a volatile performer this year. Shares are down about 6 percent on concerns about Google's valuation, its lack of diversification and the increased competition in search.
Google also may be a victim of unreasonably lofty expectations, said Sasa Zorovic, an analyst with Oppenheimer & Co. Google's earnings were about 9 percent higher than consenus forecasts. In the first quarter, Google beat estimates by 16 percent.
"My sense is that they didn't beat by enough. It's a very strong quarter but people are still hoping that Google can blow away numbers by at least 10 percent," said Zorovic.
Nonetheless, Google's results are a stark contrast to those reported by Yahoo! on Tuesday. Yahoo reported earnings that merely met estimates and revenue that missed forecasts slightly.
Yahoo also warned that third-quarter sales would be lower than what Wall Street was expecting, and announced that it was delaying the launch of new search tools from the end of the summer to sometime during the fourth quarter.
Yahoo's stock plunged nearly 22 percent on Wednesday as a result. Analysts said the delay should further benefit Google, which already enjoys a wide market-share lead in search over Yahoo.
To that end, Zorovic said Google's results were strong enough to probably force most analysts to raise their 2006 sales and earnings targets for the company.