Update: Google posts strong Q4 growth in revenue, net income

Google saw its revenue and net income grow significantly in its fourth quarter, as the search engine giant's ad sales continued to climb both on its Web sites and on its ad network partners' Web sites.

Google closed the quarter, ended Dec. 31, with $1.032 billion in revenue, up 101 percent compared with 2003's fourth quarter, the Mountain View, California, company said in a statement. Meanwhile, the company generated $204.1 million, or $0.71 per share, in net income, up from $27.3 million, or $0.10 per share.

Google's own Web sites generated 51 percent of the quarter's total revenue, or $530 million. Google's ad network partners brought in 48 percent, or $490 million, of which partners kept $378 million, a figure known as traffic acquisition costs (TACs). Subtracting TACs, Google's revenue for the quarter was $654 million.

For the full year, revenue came in at $3.2 billion, up 118 percent compared with 2003. Meanwhile, net income increased 278 percent to $399 million, or $1.46 per share.

In a conference call, Google executives expressed deep satisfaction over the quarter's results, but cautioned that the company remains committed to its philosophy of making decisions that may harm short-term financial results if the company thinks those decisions will help it attain long-term goals. Following this philosophy, Google doesn't provide financial forecasts and guidance to analysts ahead of its quarterly results.

"Google will continue to take risks and make investments we believe will deliver over the long term. As is clear from our results this quarter, this approach may also translate into exceptional short-term results, which is great. But we remain disciplined in our focus on and most committed in the long-term," said Eric Schmidt, Google's chief executive officer.

Larry Page, co-founder and president of products, highlighted new search products and services introduced in recent months and weeks, such as a program for digitizing millions of library books; Google Desktop Search, software for indexing the contents of PC hard drives; Google SMS, a service for querying certain portions of Google's index from wireless devices; and Picasa, software Google recently updated designed for organizing and managing images in PCs.

As for products on the horizon, Google plans to soon update the desktop search tool, Page said. Google is also working on further developing the multi-terabyte database of images and mapping information it acquired recently when it bought Keyhole Corp., with an eye to integrate it into its search services, particularly in the area of localized searching, Page said.

"In the coming weeks and months, Google will be delivering more product improvements, and new products that personalize, localize and internationalize," Page said.

Google has also been hard at work improving its ad sales activities in three main areas: first, Google has been enhancing the way it interacts with its largest advertisers; second, the company revamped its sales team structure by organizing it by industry; and third, Google is creating an "ecosystem" to support third-party professionals in charge of Google clients' advertising campaigns, Page said.

Meanwhile, Sergey Brin, co-founder and president of technology, gave details about a recently-launched program designed to retain employees and attract good candidates. The program, called the Founders Award, rewards groups of employees who have come up with innovative ideas and projects, Brin said.

In the fourth quarter, Google rewarded two teams with Founders Awards, giving the employees involved collectively over $12 million in restricted stock units, Brin said. "This is both a great internal incentive and recognition, as well as a way to attract new employees who might otherwise opt for a startup," he said.

Google is the world's most popular search engine, but it faces increasing competition from rivals Yahoo Inc. and Microsoft Corp., which have recently developed their own search engine technologies, and from other players such as Ask Jeeves Inc. and America Online Inc.

In December 2004, Google drew 34.7 percent of U.S. search engine users, while Yahoo came in second with 31.9 percent. Microsoft's MSN placed third with 16.3 percent, followed by Time Warner Inc., which includes America Online Inc., with 9.4 percent, according to market research company comScore Networks Inc.