Google Tops Estimates as CEO Page Expands Beyond Search Ads

Google Inc. (GOOG), owner of the world’s largest Internet-search engine, reported sales and profit that topped analysts’ estimates, a sign the company is benefiting from efforts to expand in mobile and display advertising.

Second-quarter sales, excluding revenue passed on to partner sites, rose to $6.92 billion, Mountain View, California- based Google said on its website. That topped $6.57 billion, the average estimate of analysts surveyed by Bloomberg. Net income gained 36 percent to $2.51 billion, or $7.68 a share, from $1.84 billion, or $5.71, a year earlier. Shares leapt in late trading.

Chief Executive Officer Larry Page, who succeeded Eric Schmidt in April, is using ads on mobile devices and the YouTube video site to lessen Google’s dependence on traditional Internet search. The company will command 41 percent of the U.S. online advertising market this year, up from 39 percent in 2010, according to EMarketer Inc., a New York-based researcher.

“All these new initiatives are really leading to accelerated growth at Google, and their core business is doing well too,” said Jordan Rohan, an analyst at Stifel Nicolaus & Co. in New York who has a “buy” rating on the shares. “This quarter makes people think that Google will be an exciting growth company.”

Google rose as much as 11 percent in extended trading. It had fallen $9.32 to $528.94 as of 4 p.m. New York time on the Nasdaq Stock Market and has declined 11 percent this year.

Second-quarter profit, excluding some items, was $8.74 a share, exceeding the $7.85 average of analysts’ estimates.

New Businesses

Page is investing in new businesses to help Google compete with newer Internet rivals such as Facebook Inc., the world’s most popular social-networking service. Online users spent an average of 6.7 hours on Facebook in June, compared with 4.1 hours on Google, according to ComScore Inc.

“For a long time, I think it was fair to knock the company as a one-trick pony, but I don’t think that’s the case anymore,” said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida, who rates the stock a “buy” and doesn’t own it. “Display is a success at this point. And I think mobile is a success -- and has even great potential going forward.”

To lure Web surfers eager to socialize online, the company last month rolled out Google+, which compares to Facebook, yet aims to let users more easily set up groups of contacts.

Photographer: Martin Oeser/AFP/Getty Images

Google rose as much as 11 percent in extended trading. Close

Google rose as much as 11 percent in extended trading.

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Photographer: Martin Oeser/AFP/Getty Images

Google rose as much as 11 percent in extended trading.

Google+ has attracted more than 10 million users so far, Page said on a conference call. Within days of its debut, Google temporarily shut the invite mechanism amid “insane demand,” Vic Gundotra, head of social efforts, said at the time.

550,000 a Day

Google intends for Google+ to follow in the footsteps of other investments, including in mobile. Google’s Android mobile operating system is expected to maintain its lead globally this year with 38.9 percent of the worldwide smartphone market, compared with 18.2 percent for Apple Inc.’s iPhone, according to research firm IDC. Page said on today’s call that 550,000 Android devices are activated on a daily basis.

Google this year should grab 9.3 percent of the display advertising market in the U.S., making it the No. 3 provider behind Yahoo! Inc. and Facebook, according to EMarketer. Google had 4.5 percent of the market in 2009.

Even as Google nabs share, its costs are rising as it adds employees. Staff increased 2,452, or 9.3 percent, to 28,768, the company said in a statement.

“We are focused on long-term absolute profit and growth as we have always been,” Page said on today’s call. “We will continue the tight financial management we’ve had in the last two years, even as we’re making significant investments in our future.”

The company is also facing rising concerns that it’s using leadership in advertising to trammel competition. Last month, Google said in a regulatory filing that the U.S. Federal Trade Commission began a review of its business practices, including search and advertising.

The European Union and the state of Texas also have begun investigations of the company’s leadership in search and advertising practices.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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