Google exceeds expectations in Q4

Google beat Wall Street’s expectations for its fourth quarter, ended Dec. 31, 2006, as the company continues on a tear, selling search engine advertising much faster than its biggest rivals and than the industry average.

Google generated revenue of $3.21 billion, an increase of 67 percent compared to the fourth quarter of 2005, the company said Wednesday. Subtracting the commissions it pays to its advertising partners, revenue came in at $2.23 billion, topping the consensus expectation of $2.195 billion from analysts polled by Thomson Financial.

Net income was $1.03 billion, or $3.29 per share, compared with $372.2 million, or $1.22 per share, in 2005’s fourth quarter. On a pro forma basis, which excludes certain items, net income was $997 million, or $3.18 per share, topping analysts’ expectation of $2.92 per share.

With profit almost tripling and revenue increasing at blockbuster rates, Google executives were unsurprisingly ecstatic in a conference call about the quarter’s results and indicated that the company has many green fields to explore and keep growing.

Google currently generates most of its revenue from search engine ads, but the company is actively investing to expand into other segments of online advertising, such as display and video ads. Google is also eyeing offline markets such as radio, television, and print advertising. In all the new ad markets it seeks to enter, Google’s strategy is to apply the ad targeting technology that has worked so well for it in delivering search engine ads.

“Our focus is to provide the widest reach possible as well as the most efficient way to manage these campaigns across media, and we’re seeing already some of the early benefits of that,” said Omid Kordestani, senior vice president of global sales.

Its nascent diversification efforts also extend to non-advertising online activities, such as e-commerce transaction fees in its Checkout service, launched in mid-2006, and to continuing to grow its already significant international business.

The company has high hopes for its Google Video and YouTube video sharing services, which are similar in scope and which will be integrated over time. “We’re taking our time with the integration so that we preserve the value of both Google Video and YouTube,” said Larry Page, co-founder and president of products.

YouTube, which the company acquired last year, is the most popular video sharing site, but it is also controversial due to the large amount of copyrighted material users upload to it without permission from the owners. Executives said Google continues to work hard at striking licensing deals with content owners and at developing technology to detect videos uploaded without permission. It also plans to share revenue with users and grow the YouTube advertising business.

“We’re pushing very hard for the success of YouTube as a brand. It has tremendous traction with the demographic that we care about. A lot of people are using YouTube today in their daily lives,” Eric Schmidt, Google’s chief executive officer, said.

Google is also expecting substantial growth in mobile search queries this year and sees significant growth in mobile advertising following next year. It is investing accordingly to capitalize on that market’s opportunities, Schmidt said. “Our model is to use targeted text ads, and we have evidence that the monetization of those ads is higher than in non-mobile uses,” Schmidt said.

Google is also more tightly integrating results from its multiple search engines into its main Web search interface in order to provide a more unified and ultimately more satisfying user experience. “We’re working on integrating different types of results: video, images, news, books, and so on, all in one place,” Page said.

Improvements also continue in Google’s ad targeting technology, which now allows the company to serve up fewer but more targeted and valuable ads, Schmidt said.

Google’s results are in marked contrast to those from rivals Yahoo and Microsoft, which haven’t been able to capitalize on online advertising as well as Google has, particularly in search engine advertising. In addition, Google’s revenue growth is way above the growth of the U.S. online ad market, which grew 37 percent in the first half of 2006, according to a report by the Interactive Advertising Bureau and PricewaterhouseCoopers.

This story was updated on January 31, 2007