Google easily surpassed analysts’ expectations, reporting that revenue climbed 33 percent and net income rose 26 percent.
“I don’t love a lot of the things that Google’s doing, but their core business is a powerhouse,” said Colin W. Gillis, an analyst at BCG Partners. “When they bust out revenues above expectations, all the sins are forgiven.”
In after-hours trading, shareholders responded favorably to the earnings report, as shares rose 6 percent.
Still, others question whether Google’s search business will keep up its steady rate of impressive growth, particularly as more searches are done on mobile phones, where people are less likely to click on ads, and as advertisers spend more money on display and social ads, compared with ads in search.
“Google’s position is less secure than what many investors would like you to believe,” said Jordan Rohan, an analyst at Stifel Nicolaus who last week downgraded Google stock from buy to hold. “In the near term, Google still counts for half of online advertising revenues and has a blocking position in desktop search, but in the long term, that position may not help thwart competition in the social or mobile arenas.”
Virtually all of Google’s revenue comes from advertising, the vast majority from search ads. The company does not separately account for revenue from display, video or mobile ads.
Google reported net income for the period ending Sept. 30 of $2.73 billion, or $8.33 a share, up from $2.17 billion, or $6.72 a share, a year ago. Excluding the cost of stock options and the related tax benefits, Google’s third-quarter profit was $9.72 a share. Analysts had expected $8.74 a share.
The company said revenue was $9.72 billion, up from $7.29 billion in the year-ago quarter. Net revenue, which excludes payments to ad partners, was $7.51 billion, up from $5.48 billion, above analysts’ expectations of $7.2 billion.
“We had a great quarter,” said Larry Page, Google’s chief executive, in a statement. He highlighted the popularity of Google+, its new social network and Facebook competitor, which he said now has 40 million users. “People are flocking into Google+ at an incredible rate and we are just getting started!”
Google so far seems to be sheltered from the economic doldrums that have hurt other Web sites and publications that rely on advertising. In the past, it has been protected from swings in ad budgets because during hard times, advertisers often turn to search ads because it is easier to track their effectiveness.
Clicks on ads on Google and other Web sites increased 28 percent over the same quarter last year and 13 percent over the second quarter this year, Google said. The amount that Google got paid for clicks increased 5 percent over last year, but decreased 5 percent over the second quarter of this year.
Despite the positive results, many analysts fault Google for making large bets in high-risk areas, like jumping into hardware manufacturing with its $12.5 billion acquisition of Motorola Mobility.
“We’re still skeptical on the deal,” said Mark S. Mahaney, an analyst at Citi. “There’s a lot of risk. Maybe the counterargument is it’s worse not to take the risk, but it will be very hard to become a hardware company for a search and advertising company.”
Analysts also criticize Google’s spending on aggressive hiring. In the third quarter, it hired 2,585 people, up from 1,526 new people in the year-ago quarter, bringing the total to 31,353.
Such worries — along with concerns about continuing antitrust investigations, competition from Facebook and deteriorating economic conditions — have caused Google’s share price to drop 8 percent this year.
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