Google posts sevenfold increase in 4Q profits

Signs of growth
In a telling sign of how quickly Google’s business is growing, the company’s fourth-quarter revenue rose 28 percent from the third quarter. Investors are focusing on Google’s sequential quarterly growth for signs of a sales slowdown — something that hasn’t cropped up yet. Google’s growth curve is outstripping Yahoo’s — the rival to which it is most often compared. Yahoo’s fourth-quarter revenue increased 19 percent from the third-quarter.

In another bullish sign, Google generated 51 percent — $530 million — of its fourth-quarter revenue from its own Web sites. Advertising on its own sites is more valuable to Google because it doesn’t have to share the money with its business partners.

Google’s success concept has intensified the competition from Yahoo, software giant Microsoft Inc. and a host of smaller companies that have introduced rival products. Google has maintained its leadership, although Yahoo has narrowed the gap since unveiling its own search technology nearly a year ago. Microsoft is stepping up its threat with a multimedia advertising blitz to promote a new search engine on its MSN site.

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Although Google’s management steadfastly refuses to project future earnings, the company seems confident about its future. Google continued its hiring spree of the past two years, adding 353 more employees during the final three months of the year to boost its payroll to 3,021 workers as of Dec. 31. That’s nearly five times more people than Google employed at the end of 2002.

Hoping to lure even more employees, Brin told analysts that the company is distributing big baskets of restricted stock to workers who develop promising technology. Google recently awarded a total of $12 million in stock to two different development teams under the new “Founder’s Award” program.

Google management also emphasized the company will continue to invest heavily in developing new technology — a commitment that theoretically could depress earnings and drag down the stock. The company spent $87.4 million on research and development in the fourth quarter, nearly tripling from $28.5 million in the previous year. Google ended 2004 with $2.13 billion in cash.

Google’s investments already have produced a raft of new products as part of an effort to make the company less dependent on ad revenue from its search engine. During the past year, Google’s diversification has included: free e-mail with so much storage that competitors quickly responded by upgrading their offerings; a tool for searching computer hard drives; and an ambitious project to index millions of books in its search engine.

For all of 2004, Google earned $399.1 million, or $1.46 per share, on revenue of $3.19 billion, In 2003, the company earned $105.6 million, or 41 cents per share, on revenue of $1.47 billion.

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