Google "ecstatic" about Q1 results

Google's first-quarter profit rose 69 per cent and results beat Wall Street expectations as the company turned search market share gains into even more revenue from its core paid search advertising business.

Google chief executive Eric Schmidt said in a conference call with analysts: "We are ecstatic about our financial results this past quarter. Our core business is very strong. It is the core business that is driving our success."

He added: "International growth is even better [allowing us to] take calculated risks in new markets and new products."

International revenue represents 47 per cent of the total, said George Reyes, Google's chief financial officer.

Net income for the first quarter was $1bn, or $3.18 per share, up from $592m, or $1.95 per share, a year ago. Excluding one-time items such as employee stock-based compensation, income was $3.68 per share, higher than analyst expectations of $3.30 per share, according to a poll by Thomson Financial.

Total revenue reached a new high of $3.66bn, up 63 per cent from $2.25bn a year earlier. Excluding traffic acquisition costs, or commission paid to content partners, revenue was $2.53bn. On that basis, analysts were expecting revenue of $2.49bn. Google paid $1.13bn, or 31 per cent of advertising revenues, in commission to partners.

Paid search represents nearly all of Google's revenue at this point. However, if its planned $3.1bn acquisition of DoubleClick goes through, it will have a huge display, or banner ad, business, too. The company is aggressively expanding its advertising platform to the offline world, including partnerships to sell ads to run on Clear Channel radio stations, on EchoStar Dish satellite TV network and in newspapers.

Reyes said the company will continue to rely on its successful automated online advertising system that has become a model in the industry for serving up context-related ads that appeal to web surfers. "Targeted and effective advertising will continue to be our mantra," he said.

More people use Google than any other search engine, and Google is able to make more money off those clicks on ads than its rivals. The search behemoth is expected to pocket three-quarters of the money spent on paid search in the US this year, according to a new report from research company eMarketer.

Nielsen/NetRatings gives Google a 40 per cent share of the US search market, compared with Yahoo!'s 12 per cent and Microsoft's nine per cent, while Hitwise puts Google's share at 64 per cent, Yahoo!'s at 21 per cent and Microsoft's at nine per cent.

The Google profits report is a sharp contrast to the first-quarter results announced by Yahoo! in which the company saw net profit drop 11 per cent from a year ago and failed to meet Wall Street expectations. The stock fell more than 11 per cent in after-hours trading when Yahoo!'s new advertising sales system failed to deliver on inflated expectations.

Google's stock, which closed the day at $471.65 per share, rose 2.7 per cent in after-hours trade following the profits announcement.

Scott Devitt, an analyst at Stifel Nicolaus, said: "The stock is performing well because it is not priced for the company to continue to hit the numbers. Google is growing at twice the rate of the industry and about six times the rate of Yahoo!. This is the blue chip growth company of the sector, and one of the remaining large [market cap internet companies that is a true growth company."

Google does not provide forward guidance but Schmidt did warn that the second quarter is typically weaker than the first quarter.

The company also announced Schmidt had been elected to be chairman of the board of directors and Stanford University president, John Hennessy, was elected lead independent director.

Google's hiring spree remains strong, with the number of full-time employees growing to more than 12,000 from just over 10,600 at the end of last year.

Elinor Mills writes for CNET News.com