Google misses earnings expectations

Search engine Google has missed Wall Street's earnings expectations for the quarter which ended on 30 September, its first...

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

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