Google Tops Estimates as Signs Point to Rebound

Google earnings

Search giant Google today reported its third-quarter financial results, topping analysts’ expectations and suggesting that the online advertising sector has begun to rebound.

Google (NASDAQ: GOOG) said that net income for the period rose to $1.64 billion, or $5.13 per share, up from $1.29 billion, or $4.06 per share, in the year-earlier period.

Excluding special items, Google reported earnings of $5.89 per share, with a net revenue of $4.38 billion.

Analysts polled by Thomson Reuters had been expecting earnings of $5.42 per share on revenue of $4.24 billion.

“While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future,” CEO Eric Schmidt said in a statement.

The company reported total revenues of $5.94 billion, up 7 percent from the third quarter of 2008.

Going into today’s earnings report, analysts have been bullish on Google as the economy begins to show signs of recovery.

“Expectations have clearly risen over the last couple weeks and the stock has followed, but Google will likely be a primary beneficiary of an uptick in consumer and advertiser spending in 4Q and 2010,” Barclays analyst Doug Anmuth wrote in a research note this week.

In the first quarter, Google reported the first revenue drop in the company’s history.

Google’s strong earnings showing follows closely on the report of a blow-out quarter from Intel (NASDAQ: INTC), another tech bellwether.

Probably more than any other firm, Google is a bellwether for the online advertising sector, which accounts for roughly 97 percent of the company’s revenue.

That’s particularly true in search, where Google commands about 65 percent of the market. The firm reported that the number of paid clicks on its sites increased 14 percent from the third quarter of 2008. The average cost per click remains depressed compared to last year, but Google said that its ad rates increased from the second quarter, another hopeful sign of recovery.

Meanwhile, the third quarter saw Microsoft (NASDAQ: MSFT) aggressively promote its new search engine, Bing, which it ultimately hopes to build into a viable competitor to Google. So far, Microsoft hasn’t managed to make a dent in Google’s share of the search market, with Bing’s incremental gains coming at the expense of Yahoo and the fringe players.

Even though Google’s balance is overwhelmingly dominated by revenues from search ads, the company has continued to branch out into new sectors, particularly in the wireless arena.

Google’s open source Android operating system has already found a home on devices offered by three of the four leading U.S. carriers, many of which are due to hit the market in the fourth quarter.

AT&T, the one hold-out among the big four, is rumored to be in talks with Dell to deliver a handset running on Android.

That would be one bridge between two companies that have lately been locked in a very hostile war of words over Google’s Voice application, another of the search giant’s pet projects. That fight is a Washington issue, where AT&T’s policy team has argued that Google Voice should be subject to the same regulations as its phone service. Google has vigorously disputed the point.

Other Washington concerns have left Google short of one member of its board of directors. Earlier this week, former Genentech CEO Art Levinson resigned from Google’s board following an inquiry by the Federal Trade Commission over directors serving on both Google’s and Apple’s boards, given the intensifying competition between the two firms. Schmidt stepped down from Apple’s board in August.

Then this morning, Google unveiled its plans to introduce an e-book reader that would rival Amazon’s Kindle and a host of other competitors.

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