Google delivers robust Q1 growth

Strong sales of online advertising boosts revenue

Google's revenue and earnings grew significantly in 2005's first fiscal quarter compared with the same period last year thanks to vibrant sales of online advertising, the Mountain View, California, company said Thursday.

Revenue came in at $1.256 billion for the quarter, which ended March 31, up 93 percent from 2004's first quarter. Of that total, Google paid out $462 million to partner Web sites that carry ads sold by Google. These payments are called traffic acquisition costs, or TACs.

Meanwhile, Google generated net income of $369 million, or $1.29 per share, up from net income of $64 million, or $0.24 per share in 2004's first quarter. This represents a net income increase of about 477 percent.

Unlike most publicly traded companies, Google doesn't provide financial forecasts to analysts ahead of its earnings announcements.

"We're obviously very happy with our first-quarter results," said Eric Schmidt, the company's chairman and chief executive officer, during a conference call to discuss the earnings announcement.

"I'm particularly proud of our sound execution throughout this period of very rapid growth. Again this quarter, Google innovated, grew and delivered strong financial results while concurrently strengthening our relationships with our advertisers and users," Schmidt added.

At the end of the first quarter, Google had 3,482 full-time employees, compared with 3,021 on Dec. 31, 2004, the end of 2004's fourth quarter.

Google-owned sites contributed 52 percent of the total revenue, with the rest coming from third-party Web sites that run ads distributed by Google. Revenue from Google-owned sites grew 116 percent to $657 million. Revenue from partner sites rose 75 percent to $584 million, helped particularly by the first full quarter of partnership with America Online's Europe division, said George Reyes, Google's chief financial officer.

On the topic of ad network partners, Ask Jeeves, which is in the process of being acquired by IAC/InterActiveCorp, has a contract with Google that runs through 2007 and will continue throughout the merger process, Reyes said.

International operations contributed 39 percent of total revenue in the first quarter versus 35 percent in the third quarter. "We're pleased that our efforts overseas are paying off handsomely," Reyes said. "We continue to call out international operations as an area of significant focus for us this year."

Larry Page, Google co-founder and president of products, highlighted some major new and enhanced services and products that Google introduced during the first quarter. They included the ability for users to customize the Google News page; an upgrade to the Google Desktop Search tool, which exited its beta, or test, phase; improvements to the Gmail Web mail service, such as a significant storage increase; and the launch of the Google Mini enterprise search appliance, aimed at small and medium-sized businesses.

Meanwhile, Sergey Brin, Google co-founder and president of technology, highlighted improvements in the company's advertising and compensation programs.

During the conference call's question-and-answer period, the executives were asked to comment on the problem of click fraud, which happens when someone clicks on an online ad multiple times to inflate the fee charged to the advertiser by the ad seller, such as a search company. Page said Google has technology in place to detect and combat click fraud and that the problem hasn't had a material impact on Google's business.

In response to a question about copyright claims against Google, such as the recent lawsuit by Agence France Presse (AFP) over the inclusion of its content in Google's news aggregation page, Schmidt said Google is very aware of and sensitive to this issue and that its mission is to collect information without infringing on copyrights.

Days after AFP filed its lawsuit last month, Google announced its decision to remove the news agency's content from its Google News page.

Copyright © 2005 IDG Communications, Inc.

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