Google posts sevenfold increase in 4Q profits

updated 4:54 p.m. ET Feb. 1, 2005

MOUNTAIN VIEW, Calif. - Google Inc.’s fourth-quarter profit surged to a sevenfold increase, accelerating the financial gains that have quickly turned the online search engine leader into a Wall Street favorite.

The Mountain View-based company said Tuesday that it earned $204.1 million, or 71 cents per share, during the final three months of 2004. That compared to net income of $27.3 million, or 10 cents per share, at the same time in 2003.

Revenue for the period totaled $1.03 billion, more than doubling from $512.2 million in the prior year. After subtracting commissions paid to other Web sites in its advertising network, Google’s fourth-quarter revenue worked out to $653.5 million, more than doubling from a comparable figure of $296 million in the previous year.

If not for a $60 million charge to cover stock compensation paid to its employees, Google would have earned 92 cents per share, unadjusted from income taxes. That figure exceeded the mean estimate of 77 cents per share among analysts surveyed by Thomson First Call. It marked the second consecutive quarter that Google has blown by analysts’ earnings estimates since the company’s closely watched initial public offering of stock nearly six months ago.

The company released the results after the stock market closed. Google’s shares fell $3.72 to close at $191.90 on the Nasdaq Stock Market, then climbed by $16.90, or 8.8 percent, in extended trading. The shares have reached a high of $205.30 since Google’s IPO, which was priced at $85.

Lucrative ad system
Google is getting rich off a system that requires advertisers to bid for the right to have their Web links displayed alongside search results. The advertisers pay Google and its partners, which include AOL and Ask Jeeves Inc., whenever visitors click on the commercial links.

“The model that we have built over the years is working very, very well right now,” Google CEO Eric Schmidt said during an interview Tuesday.

Google’s stock has emerged as one of the nation’s priciest because investors are betting the company’s iconic search engine will continue to attract hordes of advertisers, producing breakneck earnings growth.

Although Google co-founders Sergey Brin and Larry Page have warned they might make decisions that weaken short-term earnings, Wall Street’s high expectations mean the company must handily beat analyst estimates or risk a sharp drop in its high-flying stock.

Based on Tuesday’s closing stock price, Google’s market value stood at $55 billion — more than General Motors Corp. and Ford Motor Co. combined. Google’s stock carries a price-to-earnings ratio of nearly 230, an extremely high multiple for a measure that is widely used to appraise a company’s value. By comparison, other well-known — and older — Internet companies such as Yahoo Inc., Amazon.com Inc. and eBay Inc. have price-to-earnings multiples ranging between 58 and 68.

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