April 20 (Bloomberg) -- Google Inc. said first-quarter profit rose 60 percent, exceeding analysts' estimates, as the world's most-used search engine extended its lead over Yahoo! Inc. and Microsoft Corp.'s MSN. The shares rose 8 percent.

Net income rose to $592.3 million, or $1.95 a share, from $369.2 million, or $1.29, a year earlier, Google said today in a statement. Revenue rose 79 percent to $2.25 billion.

Google lured more users with new products and attracted advertisers in Europe and the U.K. About 60 percent of Internet searches were made through Mountain View, California-based Google in February, up from 50 percent a year earlier. The result allayed lingering concerns from the fourth quarter, when profit missed estimates for the first time since Google went public in 2004.

``It's an absolute relief,'' said Jason Schrotberger, who helps manage $20 billion at Turner Investment Partners in Berwyn, Pennsylvania, including Google shares. ``A lot of people, based on last quarter, were hesitant to believe that Google could put up these kind of numbers.''

Profit, excluding stock compensation costs and fees for settling a lawsuit, was $2.29 a share, beating the $1.97 average estimate of 29 analysts surveyed by Thomson Financial. Jefferies & Co. analyst Youssef Squali, whom StarMine Corp. ranks the most accurate Internet analyst, anticipated profit of $2.04 a share.

Excluding ads sold on other Web sites, revenue rose to $1.53 billion, topping Squali's $1.44 billion prediction.

Google shares jumped $33.31 to $448.31 in extended trading after the report. If the gain continues in regular trading tomorrow, the rise would be the biggest since Google reported earnings on Oct. 21.

Recovery

Chief Executive Officer Eric Schmidt parlayed the Internet searches into enough revenue to compensate for spending on products, new offices and hiring. Total expenses almost doubled to $1.51 billion.

``Google is demonstrating it can recover from a bad quarter and also expand considerably without slowing its growth,'' said Barry Randall, a senior portfolio manager in Baltimore with MTB Investment Advisors, which has about $12 billion under management, including Google shares. ``There's nothing here that will cause anyone to doubt their strategy.''

Analysts were optimistic Google would release an upbeat report after Sunnyvale, California-based Yahoo, the No. 2 in search, reported advertising sales that topped analysts' estimates.

``Yahoo search was better than people expected and this looks better too,'' said Greg Barlage, who helps manage $35 billion at Baring Asset Management in Boston.

Online Surge

Google's net revenue rose 19 percent from the fourth quarter. Goldman, Sachs & Co. analyst Anthony Noto had estimated 13 percent growth. Noto said Google's profit margin, at 65.5 percent, met his estimate. Noto, who rates the shares ``outperform,'' said the shares may now rise to as much as $530.

International sales were 42 percent of revenue, compared with 39 percent a year ago as Google opened or expanded offices in Europe and China.

``There was a clear breakout in the international area,'' Schmidt said in a telephone interview. ``Europe and the U.K. were very, very strong.''

Google and Yahoo are benefiting from a surge in online advertising. Internet ad spending in the U.S. rose 30 percent to $12.5 billion in 2005, according to a report today from the Interactive Advertising Bureau and PricewaterhouseCoopers LLP.

Search advertising rose 34 percent to $5.14 billion from a year ago and accounted for 41 percent of the total market.

Google's share of the search market in February compares with Yahoo's 20 percent and MSN's 9 percent, according to ComScore Networks Inc.

Missteps

The upbeat results followed a disappointing fourth-quarter report, when Google missed estimates because of rising spending and a higher tax rate. Management followed with missteps including bearish comments by Chief Financial Officer George Reyes and the accidental disclosure of internal forecasts, sparking falls in the stock.

The shares regained ground as Google extended its lead in search and the stock was added to the Standard & Poor's 500 Index.

Google plans to ``experiment'' with how to communicate with investors and may hold more informal discussion sessions, Schmidt, 50, said today on a conference call with analysts.

Keep Spending

Schmidt added a finance Web site, a tool for creating Web pages, and a new version of its software for searching personal computers in the first quarter.

Those projects, as well as the opening and expansion of offices from Phoenix to Beijing and Moscow, are ramping up expenses. Google added more than 1,000 employees in the period to end the quarter with a headcount of 6,790.

Sales and marketing expenses more than doubled from a year earlier to $190.9 million, and jumped 23 percent from the fourth quarter. Research and development costs more than doubled to $246.6 million from a year ago.

``Make no mistake about it, we really are in investment mode,'' Reyes said. ``We believe it will pay back in spades.''

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

Last Updated: April 20, 2006 19:01 EDT