Google's Earnings Surge, Putting Firm Back in Favor

JULY 15, 2011  THE WALL STREET JOURNAL

By AMIR EFRATI

Google Inc. posted a 36% jump in quarterly profit, sending its shares surging and wresting back the attention of investors who lately have doted on newer Internet darlings.

Search giant's 36% rise in quarterly profit is coming from higher demand for its online ads, says MarketWatch's John Letzing, who reports CEO Larry Page says 10 million people have profiles in Google+ and that 135 million Android devices have been activated. Lauren Rudser reports. Image courtesy of AP.

The Internet search company, which continued to spend heavily on new projects and staff, logged a 32% jump in revenue for the second quarter. The growth was driven by Google's core search engine advertising.

Chief Executive Larry Page gave his lengthiest comments on strategy since he took over Google in April, remarks aimed at showing the Web company can compete with the new crop of Internet firms.

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The CEO said the company's new social network, Google+, already has more than 10 million users after just two weeks as an invite-only service. Mr. Page said Google+, which will compete with Facebook Inc. and Twitter Inc. for advertisers and users' time, is "an example of a focus of mine: beautiful products that are simple and intuitive to use."

Mr. Page's remarks and Google's results sent the company's shares up more than 10% in after-hours trading after ending at $528.94 at 4 p.m. on the Nasdaq Stock Market.Mr. Page said he sees "more opportunities for Google today than ever before, because, believe it or not, we are still in the very early stages of what we want to do." He stressed that the company's investments in its Android mobile-device software and the Chrome Web browser will "generate huge new businesses for Google in the long run, just like search."

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Google for years enjoyed its status on Wall Street as a high-flying tech concern. But its growth rate has slowed in recent years and its shares had recently traded near late-2006 levels.

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As Google became more of what investors dub a "value" than a "growth" stock, it was also confronting an investor base that is more excited about a slew of soon-to-be public Internet companies showing much faster growth.

Investors bid up the value of closely held Internet companies such as Facebook, while Google's shares traded as if it were a slow-moving incumbent.

Some analysts say the dichotomy is justified, and the growth of Facebook in particular could come at Google's expense. In addition, new U.S. antitrust scrutiny of Google could make it harder for the company to show it won't be a slow-growth cash machine like software giant Microsoft Corp.

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"People think these newer entities coming out now are recession-tested and have much higher growth profiles than Google over the next three years," said Mark Mahaney, an Internet analyst at Citigroup Inc. who downgraded Google's stock to "hold" from "buy" several months ago. Google's recent share price is an indication that to some investors the company has become "Microsoft Version 2.0," he said.

Google's costs have continued to rise sharply as the company seeks to compete with newer rivals. The company's operating expenses in the quarter were $2.97 billion, up from $1.99 billion a year ago, similar to the increase in expenses in the first quarter.

The company said its capital expenditures—what it spends on servers, data centers and networking equipment—was $917 million in the first quarter, up from $476 million a year earlier.

Mr. Page defended Google's investments, which also include the expected hiring of 6,000 new employees this year, and a recent 10% salary increase for workers. Google added 2,452 employees since April, bringing its total work force to 28,768.

For now, Google's core search business still fuels its profits. Google said its paid clicks, a measure of how frequently consumers click on its ads, rose 18% in the second quarter compared with a year earlier, and a level that has remained