Google on Thursday declared the worst of the recession over and paved the way for a return to heavy spending on expansion as it reported a surprisingly strong 8 per cent jump in net revenues in its latest quarter.
The optimism reflected what the company said was an across-the-board recovery in online advertising, with even the struggling financial services sector showing a return to growth. While search engine advertising has held up better than most other forms of online media in the downturn, Eric Schmidt, chief executive, said the advertising revival appeared to have spread across the internet more broadly. The news pushed the company’s shares up 3 per cent in after-market trading, to $544, capping a run that has seen the shares climb 120 per cent from the bottom late last year. The figures for the three months to the end of September point to a return to sequential quarterly growth for the search giant after two periods in which its revenues were either flat or down from the preceding quarter, the first time in its 10-year history it had been through such a decline. Investors often pay close attention to sequential quarterly comparisons for high-growth companies since they provide a more immediate view of the growth trajectory. Drawing a clear line after the downturn, Mr Schmidt praised the company’s management team for holding down costs in recent quarters but said the time had come for a return to the company’s earlier ambitious expansion path.
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Google’s operating profit margin climbed to 40 per cent in the latest quarter, up from 37 per cent a year before, as it kept a lid on hiring and other costs. Mr Schmidt said he was now ready to start spending heavily again on long-term growth, though he did not forecast how fast costs would rise or what this would do to profit margins. Wall Street grew frustrated with Google as its headcount soared and costs appeared out of control in the middle of this decade, but the group, under a new chief financial officer, proved more adept at putting the lid on spending in the downturn. Google’s rebound in the third quarter also reflected a partial recovery in its pricing power. The company said that its average cost-per-click — the amount advertisers pay each time a user clicks on their ads — rose 5 per cent compared with the second quarter of this year, though the figure was still 6 per cent lower than a year before. The company reported revenues of $4.38bn, after deducting $1.56bn in traffic acquisition costs it pays to other website operators. Net income climbed 27 per cent to $1.64bn, while earnings a share reached $5.89 on the pro-forma basis on which Wall Street judges the company. Analysts had been expecting Google to report pro-forma earnings of $5.35 a share on revenues of $4.24bn, compared with the $4.92 a share and $4bn it reported a year ago. The decline in the dollar since the end of June contributed to the rebound from the preceding quarter, since it raised the value of the 53 per cent of Google’s revenues that are earned outside the US.