[More on Google]
Google Inc. has increasingly become known as much more than a Web-search company as it expands into new products and types of advertising. But its core search business once again drove strong revenue and profit growth during the first quarter.
The Mountain View, Calif., company said first-quarter profit surged largely as a result of increases in its advertising revenue from its Web-search activity, which continues to surpass rivals such as Yahoo Inc. and Microsoft Corp. Revenue rose 63%.
Google benefited from continuing efforts to expand its ad-sales activities outside the U.S., as growth in international markets outpaced its domestic growth in the quarter. Also, it continued to reap benefits from partnerships with other Web sites and computer makers to broker advertising and distribute Google's search-toolbar software.
At the same time, Google said it hadn't backed off its massive investments in infrastructure such as computer servers and networking equipment used to run its services, spending $596.9 million during the first quarter, compared with $366.6 million in the fourth quarter.
"We're ecstatic about our financial results this past quarter," said Chief Executive Eric Schmidt in a conference call with analysts. "It's the core business that is driving our success." Mr. Schmidt said Google was "still at the beginning" of its core search and advertising business, even as the company is trying to increase its sales of graphical display ads, such as banners, through its planned $3.1 billion acquisition of Internet-advertising-services company DoubleClick Inc., announced last week.
"We're still in the very early stages of display ads and branding ads and that whole area," said Google co-founder Larry Page.
Google reported results after regular trading hours. In 4 p.m. Nasdaq Stock Market composite trading, Google was down $4.36 to $471.65. In after-hours trading, Google was quoted at $483.30, up 2.5%.
Yahoo had plunged about 12% Wednesday after it posted an 11% drop in first-quarter net income, as an upgrade to its online-ad systems failed to produce a positive surprise some investors had hoped for.
Excluding certain stock-based compensation and other factors, Google earned $3.68 a share for the quarter. That beat a Wall Street average forecast of $3.30 a share on that basis, Thomson Financial said. Revenue excluding commissions paid to marketing partners totaled $2.53 billion, slightly above analysts' estimates of $2.49 billion.
Google's rate of revenue growth continued to slow, a common occurrence when companies become larger and additional revenue gains come off a bigger base. First quarter revenue increased 63% from a year earlier, compared with 67% in the fourth quarter and 79% in the 2006 first quarter.
International operations formed 47% of Google's revenue, higher than the previous quarter, with Google executives highlighting strength in the United Kingdom and other European and Asian markets. Google's staff numbers increased 15% to 12,238 employees as of March 31, up from 10,674 as of Dec. 31.
Some analysts highlighted the growth in sales of ads that appear on Google's own sites. "The Google sites revenue was very strong and well above Yahoo. The leadership gap continues to widen," said Anthony Noto, an Internet analyst at Goldman Sachs, whose firm owns Google shares and has done investment banking for Google and Yahoo within the past 12 months.
Google handled 55.8% of U.S. Web search queries in February, compared with 20.7% for Yahoo and 9.6% for Microsoft, NetRatings Inc. said. Google's 40% growth rate in the number of queries handled compared with a year earlier far outpaced those rivals.
Google also announced Mr. Schmidt's election as chairman. Google hadn't had a chairman since it went public in 2004. He remains CEO.
Google Inc. plans to begin selling advertising on more than 675 radio stations owned by Clear Channel Communications Inc., in a move designed to add scale to the Internet giant's offline ad-brokering efforts and boost Clear Channel's revenue.
The arrangement, which the companies announced Monday, is the latest in a string of media ad-sales partnerships Google has unveiled as it pushes beyond selling ads online to doing so for newspapers, radio and television. For a radio industry that has struggled for the past few years to nudge broadcast revenue much above the $20 billion mark, such tie-ups hold the possibility of jump-starting growth.
Under the multiyear deal, Google, of Mountain View, Calif., will sell less than 5% of Clear Channel's advertising inventory across its various stations nationwide, the companies said. That represents potentially some tens of thousands of 30-second spots per week. The two companies didn't disclose financial terms, apart from saying that Clear Channel, the nation's largest radio broadcaster in terms of revenue and number of stations, will get the majority of the ad revenue. Google also traditionally offers such ad-distribution partners guaranteed minimum revenue payments.
The two companies said that making it easy for Google's hundreds of thousands of existing online advertisers to buy Clear Channel radio spots through Google's Web-based ad-sales system should result in greater demand for the spots, boosting Clear Channel's revenue. "What we're really focused on is adding additional advertisers," said John Hogan, chief executive of Clear Channel Radio.
One challenge will be managing any overlap with Clear Channel's more than 5,200 radio-ad salespeople. If existing radio advertisers sense they can get a better deal by going through Google, that could wreak havoc with Clear Channel's sales efforts and rate cards. The companies said that wouldn't be an issue, but didn't identify specific steps to encourage advertisers to stick with Clear Channel's sales force. (See related article.)
Some prior efforts to sell radio ads online have suffered from the small number of spots available and their low value -- typically, "remnant" spots that otherwise might have gone unsold. Google last year bought dMarc Broadcasting Inc., which sold radio ads online, as the basis for its radio-advertising efforts, and subsequently signed up partners such as XM Satellite Radio Holdings Inc. But Google still was limited to brokering ads for around 900 radio stations, a fraction of the more than 11,000 noneducational stations in the U.S. and less than rival online radio-ad sales companies such as privately held Bid4Spots Inc.
Under the deal being announced, Clear Channel by the end of the second quarter plans to start making available some ad time on almost every radio station -- including top properties such as KFI, a news and talk station in Los Angeles, and Z100, a hits radio station in New York -- and times of day with the most listeners such as "morning drive."
Advertisers will be able to specify the markets and types of radio stations where they want their ad to be played, but won't be able to specify which Clear Channel radio stations will play it. Advertisers can either bid against each other in an auction for the time or pay a premium rate to secure the slot in advance. Google declined to say how many advertisers are currently buying radio ads through its system, which is still in a test phase.
Bringing on Clear Channel could provide momentum for Google to sign deals with other radio companies and attract advertisers to buy through the system. Google has held talks with CBS Corp.'s radio division about brokering ads for it, according to people familiar with the matter. Google advertising sales Vice President Tim Armstrong said Clear Channel was Google's most important audio advertising partnership to date. "We're hoping it's a step function change," he said, meaning it will boost Google's radio-ad sales effort to the next level.
The Internet company Friday announced an agreement to buy online advertising-services company DoubleClick Inc. for $3.1 billion, as part of its efforts to push deeper into graphical and video advertising online. (See related article.) Earlier this month, Google announced it was expanding its nascent TV ad-sales efforts with an agreement to broker ads for satellite-TV provider EchoStar Communications Corp.
Clear Channel is making available to Google only 30-second spots, as part of its effort dubbed "Less Is More," to cut back the number of 60-second ads that are common in radio advertising. Mr. Hogan believes 60-second spots are long and encourage listeners to change the station. He also has worked hard to try to increase the quality of radio advertising, beefing up a creative-services group that helps Clear Channel advertisers make snappier spots. The same support will be available to advertisers that use the Google service, Mr. Hogan said.
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Google Inc. said Friday that it would purchase Internet services company DoubleClick Inc. for $3.1 billion, marking another big foray into the heart of the Web economy.
The price represents a stunning change in valuation for the company, given that it fetched $1.1 billion in 2005, and has since sold off parts of itself to other parties. Among others, Microsoft Corp., had been vying for control of New York-based DoubleClick, which is controlled by San Francisco private-equity firm Hellman & Friedman.
The price represents a roughly 800% return for DoubleClick's owners, who paid about $330 million of equity for the company, and reaped a combined $3.5 billion from Friday's deal and the sale of another business unit.
"This was heavy-duty business building that private equity does enormously well," said Hellman & Friedman's Philip Hammarskjold.
In adding DoubleClick, Google pushes deeper into the business of placing, or "serving," the electronic advertisements that dot Web sites.
"The most important thing is that the ad will come faster and will be much more targeted," Google Chief Executive Eric Schmidt said in an interview.
But it also complicates Google's already fraught relationships with Web publishers, who often rely on Google for advertising revenue and traffic, but worry that Google's ever-growing market power may somehow crimp their own growth plans.
DoubleClick also brings a vast list of relationships with Web publishers and advertisers that Google could use to move its online-ad offerings beyond the small text ads that it places alongside search results.
Customers include Time Warner Inc.'s AOL and News Corp.'s MySpace. The company also runs a service called Performics, which among other offerings, works with advertisers to help place ads on Internet search engines, such as Google.
Many Web publishers rely on ad-serving services such as DoubleClick's to insert ads on the fly when a visitor pulls up a Web page. Some advertisers and their agencies depend on DoubleClick to deliver their ads to the Web pages.
The ad-serving that DoubleClick does would be an obvious complement to Google's push to sell more graphical and video advertising. When it has sold ads for other publishers through its online advertising system, Google serves ads for those publishers, but it generally doesn't serve ads that weren't bought through its system. People familiar with the matter say Google has been preparing a service that could serve ads on sites even when Google itself hasn't sold the ads.
The deal comes as Google also expands its ad-brokering services into offline media, such as print, radio and television.
This deal could put significant pressure on Yahoo Inc., as it gives Google direct relationships with display advertisers, an area of traditional strength for Yahoo.
An agreement would also mark a second time that Google has outdistanced Microsoft. In 2005 it beat out the software maker for a partnership in AOL. Some Microsoft executives are convinced Google is making such investments mainly as a defense.
Losing DoubleClick also adds a roadblock to Microsoft's goal of entering search and advertising areas that Google hasn't staked out yet. DoubleClick would have given Microsoft instant entry into the market for running ads on other companies' Web sites. Now Microsoft may have to build its own service if it decides to compete. That approach has proved difficult for Microsoft.
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In techie circles, fevered guesswork about Apple Inc.'s iPhone handset has now given way to speculation about a mobile phone from search giant Google Inc.
People familiar with the matter say the Mountain View, Calif., company is developing new software tailored to run on mobile phones. The software goes well beyond the applications for phones Google already offers for accessing services such as search and maps, the people say. It could more closely resemble a software platform for such devices, along with integrated applications for accessing Google's Internet services.
Which hardware manufacturers might partner with Google to make devices to run the software and the devices' technical specifications remain a matter of increasing speculation.
A report that a top Google executive in Europe confirmed the existence of a phone project this week heightened the pitch of the guesswork. Spanish site Noticias.com reported that Google's chief for Spain and Portugal said her company has investigated developing a mobile phone.
Separately, venture capitalist Simeon Simeonov this month had written on his Web blog that Google was working on a phone project, crediting an "inside source close to the company."
Mr. Simeonov wrote that a Google device would in some way resemble Research In Motion Ltd's BlackBerry, and that Google would likely rely on a partner such as Samsung Electronics Co. to do the actual manufacturing.
Google is keeping mum about any plans. "Mobile is an important area for Google and we remain focused on creating applications and establishing and growing partnerships with industry leaders to develop innovative services for users world-wide," said a company spokeswoman in a statement, adding, "however, we have nothing further to announce."
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