Third-quarter revenue was $1.578 billion, up 96% year-over-year, driven by growing online advertising and Google’s growing share of the Internet search market. Google on Thursday reported record earnings, sending its stock soaring in after-hours trading. The Internet search company saw revenues of $1.578 billion for the quarter that ended September 30, 2005, up 96% from the third quarter of 2004, and up 14% compared to the company’s second quarter.
Google’s third quarter net income was $381.2 million — $1.32 per diluted share — over six times more than its Q3 earnings a year ago of $52.0 million. Financial analysts predicted Google’s quarterly EPS would fall in the $1.26 to $1.44 range. As in previous quarters, advertising from Google and its network partners — sites displaying its ads — accounted for most of the company’s earnings. The company attributed its performance to the continued growth of online advertising and a strong product lineup.
Revenue from Google-owned sites grew at a rate of 20% during the quarter, faster than the 7% growth in revenue generated through partner sites. “We had another exceptional quarter despite our expectations going into it,” Google CEO Eric Schmidt said on a Webcast conference call, referring to an anticipated seasonable slowdown.
Google’s shares, 303.20 at the market close, were up more than 10% in after-hours trading at press time.
Online advertising in general has been booming. Last month, the Interactive Advertising Bureau and PricewaterhouseCoopers said that U.S. Internet advertising revenues for the first six months of 2005 reached $5.8 billion, a new record and a 26% increase over the first half of 2004.
Two days ago, Google’s primary rival Yahoo reported similarly good news for its third quarter: revenues of $1.33 billion, a 47% increase over $907 million a year earlier.
But Google is growing its share of the search market faster than its rivals. According to comScore Networks, Google in September increased its share of the U.S. search market to 37.6%, up 2.7 percentage points from 34.9% in September 2004. During that time period, Yahoo saw its share of the search market drop from 31.5% to 29.8% while MSN experienced a slight gain in market share, from 15.2% to 15.6%.
Google has added 806 employees since June 30, 2005.
The company is also growing its R&D expenditures, which now accounts for almost 10% of the company’s revenue. In Q3 2005, Google spent $152 million on research and development, compared with 57 million in Q3 2004.
“You should fully expect to see growth in this expense line for the foreseeable future,” said Google CFO George Reyes.