By Pete Carey
Declaring the worst of the recession is behind it, Google reported soaring earnings Thursday, with its biggest quarterly profit ever.
The company said its third-quarter profit was up 27 percent over last year on a 7 percent yearly climb in revenues. Its net income of $1.64 billion was higher than any other previous quarter for the 11-year-old Internet titan.
"They're coming out of the recession with guns blazing," said Youssef Squali, an analyst with Jeffries & Co, of New York.
"It's phenomenal. There's no other way to describe it," said Ben Schachter, an analyst with Broadpoint.Amtech in New York.
With such a remarkable bounce-back from a fairly flat second quarter, Google said it expects to begin hiring, buying smaller companies and investing in new technology.
"We believe the worst of the recession is behind us," Chief Executive Eric Schmidt said in a conference call with industry analysts. "We are seeing that in all the industries we pay attention to."
Schmidt said Google will add engineers and sales people to deal with new products and innovation. The company says YouTube, which it acquired four years ago for $1.65 billion in stock, is on the path to profitability. Google said it will continue to make more acquisitions, though big ones such as YouTube and DoubleClick will be less frequent.
Last year Google cut costs through a combination of reduced hiring, layoffs and trimmed perks.
With "the worst recession in a generation if not in 100 years" and a crisis in banking and the economy, Google "decided to be prudent," Chief Financial Officer Patrick Pichette said. "Now what's clear is the banking system is not collapsing, and even though many sectors are going to continue to hurt, the worst is behind us. It's important to go back and do what we do really well, invest and innovate. We're looking forward to it."
Google's revenues were $5.94 billion for the quarter that ended Sept. 30, up 7 percent from the third quarter of 2008. The company's third quarter net income was $1.64 billion, or $5.13 a share, up from $1.29 billion, or $4.06 a share in the third quarter of last year.
The company's net cash from operations in the third quarter of 2009 was $2.73 billion, compared with $2.18 billion in the third quarter of last year.
"We have been doing very well on the cash-generation front throughout this whole year," Schmidt said.
Auto advertising, boosted by the government's Cash for Clunkers program, turned in strong revenues. Travel advertising "did OK," CFO Pichette said, but in both travel and retail, consumers were clipping coupons and looking for bargains. Advertising by the financial sector was weak, though there were exceptions in advertising by the insurance industry.
Martin Pyykkonen, an analyst with Janco Partners in Denver, said the company's advertising growth probably won't translate as quickly to more traditional media such as television, magazines, newspapers and radio. "They have such a unique formula" that it is one of the first to benefit from an upswing in advertising, he said.
The search firm is building on its 2008 acquisition of DoubleClick for a foothold in display advertising with technology that automates the process of buying a display ad. That business should grow "pretty rapidly," Schmidt said.
The widespread adoption of smart-phones has driven Google's mobile searches up 30 percent from the second quarter, Pichette said. "More smart-phones means more people on the Internet, and more people on the Internet is good for Google," he observed in an interview after the conference call.
Mobile phones are generating new types of searches based on the location of the searcher, he said. The company is "bullish" on mobile search and is investing heavily in it, he said.
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