Google enjoys eyebrow-raising revenue rise

Google's first-quarter revenue rose nearly 80 per cent and, along with an increase in profit, beat analyst expectations as the search giant continued to grow market share, the company said on Thursday.

Net income for the quarter ended 31 March was $592m, or $1.95 per share, compared with $369.2m, or $1.29 per share, during the same quarter a year ago. Excluding one-time items, including $115m in stock-based compensation, profits per share were $2.29.

Revenue rose to $2.25bn from $1.26bn a year earlier. Excluding traffic acquisition costs - or commissions paid to content partners - of $723m, revenue was $1.5bn. Nearly all Google's revenue comes from advertisements that appear on its search results pages and partner websites.

Excluding traffic acquisition costs and stock-based compensation, analysts had been expecting net income of $1.97 per share and revenue of $1.4bn, according to Thomson Financial.

Shares of Google rose nearly eight per cent in after-hours trading following the profits announcement, to $447.06 per share from a close of $415 per share.

Chief executive Eric Schmidt told analysts during a conference call: "We are obviously very happy with our Q1 results." Google has improved its search quality and increased end user traffic, which has boosted its market share, he said.

Schmidt said: "Our own internal estimates show we are gaining share in all our key markets." Meanwhile, local targeted ads and mobile-related search and advertising are expected to contribute to revenue growth in coming quarters, he added.

Google saw increased revenue from ad sales on its own website through its AdWords keyword search advertising platform and on publisher partner sites through its AdSense contextual ad platform, said George Reyes, chief financial officer.

Reyes told analysts: "We are also very happy with the continued growth in our Google site revenues, which were up 97 per cent over Q1 of '05. We also benefited from favourable traffic trends during the [first quarter] as well as continued gains in monetisation. Our network business also performed well. AdSense revenues grew 59 per cent year over year."

Piper Jaffray analyst Safa Rashtchy said the stock rise was due to the "positive tone" from Google executives and the good profits results.

Rashtchy said: "I thought it was a very strong quarter, very clean results. They saw strength across the board, both in the US and internationally, and with [ad] partners and on their own sites. Also, I think they sounded quite positive about the growth potential, both in search from advertisers and market share gains, as well as new areas like mobile, their ad network and Google Base."

For the full fiscal year, Google said it expects stock-based compensation charges for grants to employees prior to 1 April, 2006, to be $370m.

The company had cash of $8.4bn at the end of the quarter and 6,790 full-time employees worldwide, up from 5,680 at the end of last year.

Google is gaining market share on its closest rivals, with 42.7 per cent share for searches in the US last month, up from 36.4 per cent a year ago, according to ComScore Networks. Yahoo! had 28 per cent market share last month, down from 30.6 per cent a year ago, and Microsoft had 13.2 per cent, down from 16.5 per cent, the figures show.

Nielsen/NetRatings puts Google's US search market share at 49 per cent, a 41 per cent rise in number of searches year over year.

Google missed profits expectations last quarter for the first time since going public in 2004, sending its stock into an after-hours fall. The company posted fourth-quarter profits per share of $1.22, or $1.54, excluding one-time items.

Google plans to sell 5.3 million shares in a second follow-on stock offering, which would raise more than $2bn based on the company's current stock price.

The search giant's stock jumped nearly eight per cent after the shares were added to the Standard & Poor's 500 Index last month. The stock dropped more than seven per cent in February after Reyes suggested that growth was slowing.

On Tuesday, Yahoo! posted first-quarter net income that was down from a year ago on higher stock compensation expenses but which was in line with analyst expectations.

Google is holding its annual shareholder meeting on 11 May.

Elinor Mills writes for CNET News.com