Google Profit Climbs 30% on International Expansion (Update2)

By Ari Levy

April 17 (Bloomberg) -- Google Inc., owner of the most popular search engine, reported a 30 percent increase in first- quarter profit after international expansion countered a slowdown in U.S. advertising spending. The shares jumped 17 percent.

Profit beat Wall Street estimates by more than 30 cents a share, excluding costs from stock options. Analysts had used industry data that showed slowing growth in the number of clicks on Web advertisements to predict a slump in revenue in the U.S. Instead, international sales jumped 55 percent and finance chief George Reyes said the growth in clicks ``remains healthy.''

``I was expecting them to fall short,'' said Jerome Dodson, a portfolio manager at Parnassus Investments in San Francisco. ``People said, `Google can't keep defying the laws of gravity,' but it looks like Google is flying high again.''

Google, down 35 percent this year amid concern that slower spending by U.S. financial and consumer companies would stifle growth, climbed $74.52 to $524.06 in extended trading after closing at $449.54 on the Nasdaq Stock Market.

Net income rose to $1.31 billion, or $4.12 a share, from $1 billion, or $3.18, a year earlier, the Mountain View, California-based company said today in a statement. Sales, excluding revenue passed on to partner sites, climbed 46 percent to $3.7 billion, beating the average estimate of $3.59 billion in a Bloomberg survey of analysts.

Analysts had predicted net income of $3.96 per share, according to the Bloomberg survey. Excluding costs from stock options, profit was $4.84 a share, topping analysts' average estimate of $4.52.

Currency Boost

A rise in the value of overseas currencies helped boost Google's international sales. Without the change in currency rates, revenue would have been $202 million lower, the company said.

``I don't think that kind of foreign currency benefit was expected,'' said Jane Snorek, who helps manage more than $70 billion in assets at First American Funds in Minneapolis.

Google captured 63 percent of Internet queries worldwide in February, up from 62 percent in December, according to Reston, Virginia-based ComScore. The rise may indicate that Google's efforts to remove irrelevant ads alongside its search results are attracting more users. Google accounted for 60 percent of U.S. searches in March.

Better Service

``They're trying to improve their service for customers,'' Paul Meeks, equity research director at Charleston, South Carolina-based L.R. Burtschy, which manages $500 million, said in an interview with Bloomberg Television. ``When you're doing right by your customers, in the long term that's a good thing.''

Trying to catch up with Google, Microsoft Corp. bid $44.6 billion for Yahoo! Inc., a transaction that would combine the second- and third-biggest search engines. While Yahoo rejected the bid in February, analysts and shareholders say the board may eventually agree to the purchase.

Clicks on Google's text ads -- the four lines of ad copy that run next to search results -- rose 20 percent in the quarter. That was more than 10 times faster than ComScore estimated. Still, the growth is down from 52 percent in the first quarter of 2007.

``It's a far cry from where it used to be,'' Snorek said.

Financial Crisis

A drop in finance-related searches contributed to the slowdown, said Douglas Anmuth, an analyst at Lehman Brothers Holdings Inc. in New York. The subprime mortgage meltdown that spurred the near-collapse of lender Countrywide Financial Corp. and investment bank Bear Stearns Cos. curbed Google's ad growth, he said.

Bear Stearns's ad spending fell 10 percent in the fourth quarter from the third. In March, JPMorgan Chase & Co. agreed to buy the New York-based company amid a run on the securities firm by clients and creditors.

Mortgage lender Countrywide's fourth-quarter ad budget dropped 5 percent. That company, based in Calabasas, California, agreed to be acquired by Bank of America Corp. in January after mortgage-related losses caused the stock to slump 85 percent in 12 months.

In January, after Google reported profit and sales that trailed estimates, Chief Executive Officer Eric Schmidt told analysts, ``We have not yet seen any impact from the rumors of a future recession.''

Consumer sentiment in the U.S. fell to its lowest level since 1982 this month, according to a preliminary report from Reuters and the University of Michigan, as employers cut hundreds of thousands of jobs and oil prices climbed to a record.