BL: Google Soars Most Since IPO; Profit Trumps Estimates (Update5)
By Ari Levy
April 18 (Bloomberg) -- Google Inc. posted the biggest gain since its initial public offering after profit trounced analysts' estimates, spurred by overseas growth and a bigger-than-predicted jump in the number of users clicking on text advertisements.
Google, owner of the most popular Internet search engine, advanced $89.87, or 20 percent, to $539.41 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares debuted in August 2004.
International sales soared 55 percent, outpacing total growth and allaying concerns that Google is suffering from a U.S. economic slump. Excluding some costs, profit topped the average Wall Street estimate by 32 cents a share and beat predictions of all but one of the 26 analysts surveyed by Bloomberg.
``They have a very resilient model in any type of economy,'' said Steve Weinstein, an analyst at Pacific Crest Securities in Portland, Oregon, who recommends buying the shares. ``They have strong exposure in the U.K., which had a strong first quarter. A lot of other parts of the world are early in their adoption of Internet advertising.''
Google, based in Mountain View, California, has dropped 22 percent on the Nasdaq this year, making it the 17th worst performer in the Nasdaq 100 Index. Still, the shares are up more than sixfold from their IPO. In 15 quarters as a public company, Google has exceeded analysts' estimates 12 times.
Profit Gains
Net income last quarter rose 30 percent to $1.31 billion, or $4.12 a share, from $1 billion, or $3.18, a year earlier. Sales, excluding revenue passed on to partner sites, climbed 46 percent to $3.7 billion. That beat the average estimate of $3.59 billion in the Bloomberg survey.
Excluding costs from stock options, profit was $4.84 a share, topping analysts' average estimate of $4.52.
The U.K. accounted for 15 percent of Google's revenue in the period, up from 14 percent in the fourth quarter. That country's economy expanded 2.8 percent in the fourth quarter, compared with 0.6 percent growth in the U.S.
Shares of other Internet companies also rose. Amazon.com Inc., the largest online retailer, jumped $6.06, or 8.2 percent, to $80.10. Internet auctioneer EBay Inc. rose 70 cents, or 2.3 percent, to $31.71.
Overstock.com Inc., the biggest online seller of excess retail inventory, climbed $4.47, or 32 percent, to $18.47 after its quarterly loss was narrower than estimated.
Based on the size of Google's price changes in the past, today's gain represents a 1-in-300,000-day occurrence, Bloomberg data show. The stock previously never posted a gain that would qualify as a 1-in-100-day occurrence.
Increased Ratings
Analysts at Citigroup Inc. and Merrill Lynch & Co. raised their price targets for Google to $630 and $600, respectively. Jefferies & Co. analyst Youssef Squali in New York boosted his rating to ``buy'' from ``hold.''
Analysts had relied on data from industry research firm ComScore Inc., which showed little growth in the number of clicks on Web advertisements -- so-called paid clicks. That led Wall Street to predict a slump in online advertising.
ComScore, which issues monthly reports on ad-click numbers, said the growth had slowed to 1.8 percent in the first quarter. In yesterday's report, Google cited an increase of 20 percent.
The discrepancy may stem from the way ComScore measures the data. The Reston, Virginia-based company only tracks domestic ad clicks and doesn't include results from Google's AdSense service, which places ads on Web sites such as online newspapers and blogs. Google gets almost all of its revenue from four-line text ads that mainly run alongside its search results.
`Pretty Happy'
``We've been pretty happy with our paid-click growth,'' Google co-founder Sergey Brin said in an interview after the report. ``Across the board, we're performing well.''
ComScore spokesman Andrew Lipsman declined to comment. Shares of the data provider fell 1.7 percent today.
Google captured 63 percent of Web queries worldwide in February, up from 62 percent in December, according to ComScore. International sales accounted for 51 percent of revenue last quarter, up from 48 percent in the fourth quarter.
``I don't think that number is going to go down,'' Chief Executive Officer Eric Schmidt said on a conference call. He credited some of that overseas expansion to market share growth and sales gains in China.
Technology companies such as Intel Corp. and International Business Machines Corp. also reported results that topped analysts' estimates this week, following a quarter when the Nasdaq Composite Index tumbled 14 percent. Even so, the recent results don't make the whole industry attractive, Weinstein said.
``There are a lot of opportunities on a company-by-company basis,'' he said. ``Certain companies can take more control over their growth and how they drive it.''
Yahoo Deal
Trying to catch up with Google, Microsoft Corp. has bid $44.6 billion for Yahoo! Inc., a transaction that would combine the second- and third-biggest U.S. search engines. While Yahoo rejected the bid in February, analysts and shareholders say the board may eventually agree to the purchase.
Google's performance in the first quarter increases the pressure on Microsoft Chief Executive Officer Steve Ballmer, said David Garrity, director of research at Dinosaur Securities Inc. in New York.
The earnings put ``Ballmer and Microsoft in a little bit of a corner, which probably people at Google don't feel so bad about,'' Garrity said today in a Bloomberg Television interview. ``This does set things up very well.''
Financial Fallout
Douglas Anmuth, an analyst at Lehman Brothers Holdings Inc. in New York, had expected a drop in finance-related searches last quarter to curb sales growth at Google. Financial firms cut back spending after the subprime mortgage meltdown spurred the near- collapse of lender Countrywide Financial Corp. and investment bank Bear Stearns Cos.
``I was surprised their revenue growth was so strong,'' said Jane Snorek, who helps manage more than $70 billion in assets at First American Funds in Minneapolis. Still, the economic concerns haven't disappeared, she said. ``They can't be immune. None of those worries go away,'' she said.
Consumer sentiment in the U.S. fell to its lowest level since 1982 this month, according to a preliminary report from Reuters and the University of Michigan, as employers cut hundreds of thousands of jobs and oil prices climbed to a record.
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net
Last Updated: April 18, 2008 16:20 EDT
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