Google In Crisis - We're Full

NEW YORK Google has returned to favor among investors - now that its first-quarter profit increased 60 percent, well above expectations.

Three months ago, the company disappointed investors, even though its profit grew 82 percent, and its stock sagged. This time, Google's ascent was enough to satisfy.

"Investors, surprisingly, acted rationally this quarter and had low expectations," said Safa Rashtchy, an analyst at Piper Jaffra. Google's stock rose about 8 percent in after-hours trading after the announcement, recouping its losses since the last earnings report.

Pointing to particulars behind its successful quarter, the company said its market share of searches continued to grow around the world, as did the money it earned from advertising for each search result displayed.

Eric Schmidt, Google's chief executive, said the market share increase might be related to the use of some of the company's new products, like Google Video, Google Earth and Google Maps, as well as the introduction of Google News in several countries.

These services attract people to Google's site, where they may also conduct searches, he said.

"They drive the branding," he said during an interview, referring to the new services that the company is steadily rolling out. "All of a sudden Google is top of mind again, over and over again."

Google continued to make substantial capital investments, mainly in computer servers, networking equipment and its data centers. It spent $345 million on such items in the first quarter, more than double the level of last year. Yahoo, its closest rival, spent $142 million on capital expenses in the first quarter.

Referring to the sheer volume of Web site information, video and e-mail that Google's servers hold, Schmidt said: "Those machines are full. We have a huge machine crisis."

Jordan Rohan of RBC Capital Markets called Google's capital spending "unfathomably high," noting that it spent the same percentage of its revenue on equipment as a wire-line phone company.

"If Google's market share continues to increase, and its position as the central hub of the Internet is reinforced, an extra $1 billion is a worthwhile investment," Rohan said. "The day market share peaks, we have a problem."

Google earned $592 million in the first quarter, against $369 million in the year-earlier period.

Excluding charges for stock-based compensation and payments to plaintiffs' lawyers in the settlement of a class-action lawsuit, earnings were $2.29 a share, well ahead of the $1.97 that analysts had on average forecast.

Gross revenue rose 79 percent to $2.25 billion. Analysts prefer to look at Google's revenue after deducting the payments it makes to services like America Online, which display its advertisements and keep most of the money from them. Using this measure, Google's revenue was $1.53 billion, compared with the $1.44 billion that analysts had estimated.

Google saw faster growth on the Web sites it owns, which are far more profitable because it does not have to share advertising revenue. Revenue at such sites rose 97 percent to $1.3 billion.

Revenue from partner sites was $928 million, up 59 percent. Google kept 22 percent of the revenue for ads shown on partner sites, compared with 21 percent a year earlier.

The company is growing somewhat faster outside the United States. Revenue from abroad was 42 percent of total revenue, compared with 39 percent a year earlier. The company said that it noted particular growth in Britain, France and elsewhere in Northern Europe.

The company also continued to hire at a breakneck pace. It added 1,110 workers in the quarter for a total of 6,790 full-time employees.

http://www.iht.com/articles/2006/04/...ess/GOOGLE.php

Interesting, perhaps thats why we're seeing a bunch of algo changes in the past few months and a lot of sites with lost pages in the SERPs?

Regards,

Lee