Search engine Google has missed Wall Street's earnings
expectations for the quarter which ended on 30 September, its first
quarterly financial report after launching its initial public
offering.
Net income came in at $52m (£28.5m), compared with $20.4m in the
third quarter of 2003. Net income before certain non-recurring
items was $125m, significantly below the expectation from analysts
polled by Thomson First Call.
Google reported $805.9m in revenue in the third quarter of 2004,
an increase of 105% over the same quarter last year. Excluding
traffic acquisition costs, which is revenue Google pays to its
partners, revenue came in at $503m, exceeding analysts' expectation
of $456m.
Google's stock started trading on 19 August on the Nasdaq
Exchange. Since then, the lowest price for the stock has been
$95.96 and the highest $152.40. Its IPO price was $85.
The stock closed at $149.38, up 6.33%, before the earnings
report.
Google generates most of its revenue from selling online
advertisements that it serves up on its site and on the sites of
companies in its ad network.
The text ads are matched via relevant keywords to the content of
pages or to search engine queries, so that an ad for basketballs
would be tied to a page that mentions the term and would appear
alongside relevant search results. These ads are commonly referred
to as sponsored search ads.
Google, which was founded in 1998, gained prominence as the most
widely used internet search engine. It has been expanding its reach
both inside and outside the search market.
In the search market, Google has launched special services and
products, such as its recently announced desktop search
application, its intranet search appliance, its Froogle comparison
shopping service and Google Local service for narrowing internet
searches to a geographic area.
Other recent moves by Google in the search space have been the
introduction of a beta version of Google SMS, which lets users of
mobile phones and other wireless devices query the Google search
index via short messaging service (SMS)
It also launched Google Print, a program for publishers to have
Google scan and index their books to make the content searchable
through the company's search engine.
"It is clear to us that we have only begun work on our mission
to organise the world's information and make it universally
accessible and useful. Only a fraction of the world's information
is indexed on our computers.
We are perpetually working on ways to grow our indexes and
developing new technologies for collecting and serving up the
world's information," said Larry Page, co-founder and president of
products.
Google is also actively reaching outside the search space. In
July, it bought Picasa, which makes software for organising and
managing digital photos and runs a peer-to-peer network for sharing
digital photos. In April, it announced a web mail service called
Gmail, which is still in test mode.
Last year, Google acquired the Blogger Web log service when it
bought Pyra Labs. Recently, there have been rumours that Google
might be developing a web browser and an instant messaging
service.
Industry observers have pointed out that Google needs to broaden
its scope to diversify its revenue stream and be in a better
position to compete against rivals such as Yahoo, America
Online and Microsoft. All three are moving aggressively to increase
their share of the fast-growing and profitable sponsored search
space.
In the second quarter, overall internet ad spending was about
$2.37bn, a 42.7% increase over same period in 2003, according to a
report issued in September by the Internet Advertising Bureau and
Pricewaterhousecoopers.
Search-related ads were the largest category with $947m,
according to the report. Display ads followed in a distant second
place with $474m. Classifieds came in third with $403m.
Juan Carlos Perez writes for IDG News
Service