Google wows the Street

[Francisco Monjardino]

Google wows the Street

The search engine leader reports strong 4Q results; stock surges after-hours.

February 1, 2005: 5:34 PM EST
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Google reported strong increases in sales and earnings in the fourth-quarter Tuesday afternoon, surpassing even the most bullish projections of Wall Street analysts. Shares surged more than 9 percent on the news.

Net income for the Mountain View, Calif-based search engine leader came in at $204 million, or 71 cents a share, a 650 percent increase from the same period last year. But after subtracting a $60 million charge for stock compensation expenses, Google posted pro-forma earnings per share of 92 cents. Analysts were expecting Google to report pro forma earnings of 77 cents per share.

Revenues came in at $1.03 billion for the quarter, up more than 100 percent from a year ago. Excluding traffic acquisition costs (TAC), the portion of advertising revenue that Google shares with partners, Google reported sales of $654 million, ahead of the Wall Street consensus estimate of $592 million.


Shares of Google (Research) shot up to nearly $209 in after-hours trading, according to INET. If the stock were to open at that level on Friday, it would mark a new 52-week high for the company.

Google fell $3.72, or 1.9 percent, to $191.90 in regular trading on the Nasdaq Tuesday. Shares are up more than 125 percent since it went public in August but there had been some concern on Wall Street leading up to the report about increasing competition in search as well as the fact that nearly 177 million shares are due to hit the market in mid-February following the expiration of the company's last lock-up period for insiders.

In addition, there were fears that expectations might be too high for the company. Other online stocks, most notably eBay, have been punished lately for failing to live up to the Street's lofty projections.

To that end, Martin Pyykkonen, an analyst with Janco Partners, said that Google needed to not just beat consensus estimates but also beat the high end of Wall Street's projections, which called for pro-forma earnings of 84 cents a share and sales, excluding TAC, of $626 million.

But Google blew those numbers away, particularly on the top line. Sales were up 30 percent from the third quarter. By way of comparison, Google's top rival, Yahoo! (Research), posted a sequential sales increase, excluding TAC, of 20 percent in the fourth quarter.

John Tinker, an analyst with ThinkEquity Partners, said that this was especially noteworthy because even though Google has made several small acquisitions, sales were fueled mainly by internal growth.

"The numbers were terrific on the revenue side," said Tinker. "Business was very solid and most of their growth was organic, which is very impressive."

During a conference call with analysts Tuesday, Google chief financial officer George Reyes said that strength in international markets helped fuel overall sales growth, with revenues from outside the U.S. accounting for more than a third of sales in the fourth quarter.

For the full year, Google reported total sales of $3.19 billion, up 118 percent from a year ago, while net income increased 278 percent to $399.1 million, or $1.46 a share.

Google also reported a much better than expected increase in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), a measure of profitability often used to value media companies. Adjusted EBITDA came in at $425 million, up 125 percent from last year and well ahead of Wall Street's consensus estimate of $368.2 million.

The results from the top search engine company clearly show that the online advertising market continues to boom. Shares of other search companies Yahoo!, Ask Jeeves (Research), FindWhat.com (Research) and InfoSpace (Research) were all trading higher after hours as well. Online retail stocks eBay (Research), Amazon.com (Research) and Overstock.com (Research) also gained ground after hours.

And shares of Microsoft (Research), which formally relaunched its MSN search engine on Tuesday, were also slightly higher after hours. Microsoft announced that it is planning a marketing blitz, including television, print and Web ads, to promote the new search tool in an attempt to gain ground on Google and Yahoo!.

During the conference call, Reyes said, however that it did not think it would need to significantly expand its own advertising efforts and that the company would instead continue to focus on research and development. R&D expenses accounted for 8.5 percent of total revenues in the fourth quarter.