Google Shares Advance After Sales Gain Shows Page’s Progress in Expansion
Google Inc. (GOOG), the largest Internet- search company, rose the most in almost three years after reporting sales that beat projections, a sign it’s making progress expanding beyond search advertising.
Sales, excluding revenue passed on to partner sites, rose to $6.92 billion, Mountain View, California-based Google said yesterday on its website. That topped $6.57 billion, the average estimate of analysts surveyed by Bloomberg.
Chief Executive Officer Larry Page, who succeeded Eric Schmidt in April, is pushing into new markets such as mobile and display advertising while trying to preserve the company’s leadership in search, an area that generates most of Google’s revenue. Ad prices, calculated on a per-click basis, rose at a faster pace last quarter, a sign companies are more willing to market their wares online.
“Google is a real-time indicator in terms of the broader economy; this is a good sign,” Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis, said in an interview on “Bloomberg West.” “The improvements in ad units that we saw tonight can continue for the next few quarters.”
Google rose $68.68, or 13 percent, to $597.62 at 4 p.m. New York time on the Nasdaq Stock Market, the biggest gain since Oct. 13, 2008.
Over the next twelve months, Google shares are projected to surge to $729.21, according to the average estimate of analysts surveyed by Bloomberg. After the earnings report, Jefferies & Co. raised its price target to $830 from $800, while RBC Capital Markets boosted its projection to $790 from $680.
Profit Beat Estimates
Second-quarter profit, excluding some items, was $8.74 a share, exceeding the $7.85 average of analysts’ estimates. Net income gained 36 percent to $2.51 billion, or $7.68 a share, from $1.84 billion, or $5.71, a year earlier.
The average price for ads, calculated on a per-click basis, rose 12 percent last quarter, after rising about 8 percent in the previous period, Google said.
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.
To narrow that gap, Google last month rolled out Google+, a feature that lets users interact online. It’s comparable to Facebook, yet aims to let people more easily set up groups of contacts. More than 10 million users have signed up for Google+ so far, and they share and receive more than a billion items -- such as photos and messages -- a day, Page said during a call with analysts.
‘Long Ways Away’
“That is a big number for something that is essentially” in a test phase, said Paul Meeks, an analyst at Capstone Investments Inc. in Charleston, South Carolina. He rates the stock a “buy” and doesn’t own it.
Still, Google+ is far from an alternative to Facebook, with its more than 750 million users, Munster said.
“The probability that they will succeed has definitely gone up, but it’s still a long ways away from 750 million and growing at Facebook,” Munster said.
Other areas where Page is pushing Google to expand include mobile and display advertising.
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 yesterday’s call that 550,000 Android devices are activated on a daily basis.
Google this year should command 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 Inc. 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. Page is being careful not to waste shareholder money, he said during the call. Page, who made only a brief appearance on the previous quarter’s call, stayed for the duration of yesterday’s call.
“We are focused on long-term absolute profit and growth as we have always been,” Page said on the 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.”
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