Thursday, July 16, 2009

Google Sales Meet Estimates Amid Slump in Online Advertising

By Brian Womack
 
July 16 (Bloomberg) -- Google Inc., owner of the world’s most popular search engine, reported slower second-quarter sales growth as advertisers held back spending amid the recession. The shares fell in late trading.
 
Net income rose 19 percent to $1.48 billion, or $4.66 a share, from $1.25 billion, or $3.92, a year earlier, the company said today in a statement. Excluding revenue passed on to partner sites, sales were $4.07 billion, compared with an estimate of $4.06 billion in a Bloomberg survey of analysts.
 
Google reined in expenses earlier this year to cope with slowing advertising sales and increasing competition. In March, the company cut about 200 people, or 1 percent of its workforce. It also shut down its newspaper and radio-advertising units. Google’s main search-engine business maintained its dominance this year, accounting for about two-thirds of U.S. queries.
 
“What they’ve done is gone and eliminated the obvious initiatives that were not performing very well,” said Youssef Squali, an analyst with Jefferies & Co. in New York. He recommends buying the shares, which he doesn’t own personally. “If you announce stuff in the first quarter, most of the benefit gets realized in the second quarter.”
 
Google, based in Mountain View, California, rose $4.43 to $442.60 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have climbed 44 percent this year.
 
Leaving out some expenses such as stock compensation, profit was $5.36 a share, beating the $5.08 estimated by analysts in the Bloomberg survey.
 
Being ‘Prudent’
 
The company also has trimmed some employee perks, Patrick Pichette, chief financial officer, said at an investor conference in June. Google closed some cafes and eliminated free water bottles. The company continues to be “prudent” about its costs, he said at the time.
 
Google’s share of the U.S. Internet-search market was unchanged last month at 65 percent, according to ComScore Inc., a research firm in Reston, Virginia. The company managed to ward off an attack from Bing, a new Microsoft Corp. search engine backed by a broad marketing campaign.
 
Microsoft, based in Redmond, Washington, increased its market share to 8.4 percent, from 8 percent the previous month, ComScore said. Sunnyvale, California-based Yahoo! Inc., which ranks second in the market, dropped to 19.6 percent in June from 20.1 percent.
 
“We believe Bing will have little to no long-term impact to Google’s business,” Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis, said in a note to investors.
 
New Features
 
Google continues to add its own search features. The company announced plans in May to make it easier for Web surfers to customize query results. Users can now limit searches to a certain time frame and filter the kind of results they get.
 
Online advertising, which makes up most of Google’s sales, is outpacing print and television ads. The Internet-ad market may grow 10 percent this year, while the overall industry shrinks 8.5 percent, according to ZenithOptimedia Group in London.
 
With Internet-search advertising, marketers only have to pay when someone clicks on an ad. That helps cost-conscious advertisers get the most for their money, Squali said.
 
“Search is performing well for advertisers in this economic environment,” he said. “Marketers are looking for performance-based media, and search is it.”
 
Google is seeking fresh ways to attract users to its search engine and other online services.
 
Earlier this month, the company said it would offer computer makers a free operating system called Chrome OS. The software, available next year, will be designed for users who go to the Web to work on documents, calendars and e-mail. That contrasts with Microsoft’s traditional approach of keeping most software on computers’ hard drives.
 
To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net
Last Updated: July 16, 2009 16:10 EDT
Found at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=adSflvVOlq8s

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