July 20 (Bloomberg) -- Google Inc., owner of the most-used search engine, said second-quarter profit more than doubled as the company gained market share and improved its online advertising software.

Net income rose to $721.1 million, or $2.33 a share, from $342.8 million, or $1.19, a year earlier, Google said today in a statement. Revenue rose 77 percent to $2.46 billion.

Google parlayed its dominance of the Internet search market into record profit and sales. The results beat analysts' predictions because Google's software targets ads to consumers better than Yahoo! Inc., which this week reported sales that missed estimates. Google's search engine is used about three times more than Yahoo's, according to ComScore Networks Inc.

``We wanted more stable and balanced growth and that's what Google delivered,'' said Safa Rashtchy, an analyst at Piper Jaffray & Co. who is based in Menlo Park, California. He rates the shares ``outperform'' and doesn't own them. ``It showed really solid progress.''

Excluding sales passed on to other Web sites, revenue was $1.67 billion, compared with the $1.65 billion estimate of Jefferies & Co. analyst Youssef Squali.

Net income included a $55 million gain from the sale of a stake in Baidu.com Inc. Profit excluding one-time items was $2.49 a share, beating the $2.25 estimate of Squali, whom StarMine Corp. ranks among the most accurate Internet analysts. Analysts on average predicted profit of $2.22, based on a Thomson Financial survey of 32 estimates.

Shares of Mountain View, California-based Google, down 7 percent this year, rose $2.78 to $389.90 in extended trading. They earlier fell $11.88 to $387.12 at 4 p.m. New York time in Nasdaq Stock Market composite trading.

`Business is Good'

Google stuck to its policy of not forecasting earnings, a practice Chief Executive Officer Eric Schmidt, 51, says is designed to prevent managing earnings to analysts' estimates.

``Business is good, business is strong, search traffic growth is strong and likely to continue so for a long time,'' Schmidt said today in an interview.

The results allayed concerns about the strength of Internet search after Sunnyvale, California-based Yahoo said second- quarter net revenue was $1.12 billion. Yahoo also delayed the introduction of online advertising software to match Google.

Improvements in Google's online advertising software and market share gains prompted at least six analysts, including Goldman, Sachs & Co.'s Anthony Noto, to increase their profit estimates in the past month.

New York-based Noto, the top-ranked Internet analyst by Institutional Investor, is one of the 34 analysts who recommend buying Google shares. Four say ``hold'' and one suggests selling.

Market Share

Capital spending rose more than four-fold to $699 million from $158 million a year earlier as Google added computers and bought real estate for its headquarters. The company hired 1,152 people last quarter, taking its workforce to 7,942, a jump of 40 percent this year.

``We can't put too much capex into the system,'' Chief Financial Officer George Reyes said on a conference call with analysts. He said capital spending will ``definitely accelerate.''

Sales and marketing rose 88 percent to $196.4 million. Research and development costs more than doubled to $282.6 million.

International sales were 42 percent of revenue, compared with 39 percent a year earlier.

`Talking to Everybody'

Google is ``talking to everybody'' about forming new partnerships to distribute its search software, Schmidt said. The company already has agreements will Dell Inc. and Adobe Systems Inc. An advertising agreement with Time Warner Inc.'s AOL is ``on track,'' Omid Kordestani, senior vice president of sales, said on the call.

Google's global share of Internet searches rose to 62 percent in May from 55 percent a year ago, according to ComScore, a Reston, Virginia-based tracker of Web use. Yahoo's share fell to 20 percent, while Redmond, Washington-based Microsoft Corp.'s share fell to 9 percent, ComScore said.

``Google really has the momentum, has the share gains, has the name that people are captivated by,'' said Timothy Ghriskey, who oversees more than $1 billion at Solaris Asset Management LLC in Bedford Hills, New York. ``Google within the Internet has been the safest haven.''

To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net.

Last Updated: July 20, 2006 19:23 EDT