Google earnings blow out Wall Street estimates on cost control, click growth

Neither snow, nor rain, nor heat, nor gloom of night, nor the winds of change, nor a nation challenged, will stay Google (GOOG) from the swift completion of its seemingly inexorable march toward world domination. Google may not be the Postal Service, but it could be nearly as ubiquitous. In fact, if Google is acting like any government agency, it's the Federal Reserve, which prints money.

Google continued to print money last quarter, according to Wednesday's earnings report, which handily topped Wall Street estimates, sending the company's stock price nearly three percent higher in after-hours trading.
Google's results give credence to the company's argument that it is better positioned than its rivals to handle economic turmoil. Taken with the results delivered by IBM (IBM), the blue-chip tech giant that also beat Wall Street expectations, Google's strong profit haul is further evidence that the technology sector is shaking off the recession. The search juggernaut reported net income of $1.64 billion, or $5.13 a share, up from $1.29 billion, or $4.06 per share, a year earlier. Total third quarter revenue was $5.94 billion, up from $5.52 billion in the second quarter and $5.54 billion a year ago.

UBS internet analyst Brian Pitz called the results a "solid beat" in a note to investors shortly after the announcement. Pitz called the results "above our and Street estimates...on continued cost control" while earnings per share "came in better due likely to lower than expected hedging costs." Pitz said the increase in paid clicks was "likely due to better pricing in categories such as retail and auto."

During a conference call after the results were announced, Google Chairman and CEO Eric Schmidt called the results "all good news from our perspective" and said, "We believe the worst of the recession is behind us." He said the company, which has 20,000 employees worldwide, had slowed its hiring during the recession, but would be looking to increase its headcount moving forward. The company appears to have managed its expenses very well during the downturn, while continuing to innovate in its core business, rolling out new features on its myriad web advertising products.

Schmidt said the company's performance -- aggregate paid clicks up 14 percent year over year -- has "given us the business confidence to invest heavily in the future as we see it." He said the company would continue its philosophy of 70-20-10, in which engineers spend 70 percent of their time working on Google's core search ad business, 20 percent on ancillary projects, and 10 percent on their own projects.

Schmidt went on to say that despite the company's ventures into mobile and cloud computing, Google remains focused on its core business of web search advertising. "We want to get to the perfect search engine," Schmidt said.

The company certainly has the resources to throw around: It is sitting on a mighty cash hoard of roughly $20 billion. Schmidt said Google is "open for business in making strategic acquisitions both large and small." But for large acquisitions, there would have to be "some strategic rationale" such as a revenue boost or "large user base." Twitter anyone?

Turning to the company's mobile efforts, Schmidt predicted that "Android adoption is literally about to explode. All the necessary conditions are there." Schmidt noted that Android had gone from being offered by one carrier on one device in one country to 12 devices in 26 countries on 32 carriers in less than a year. Google's Android market currently has 10,000 applications available.

One of the key questions facing the company is how YouTube, Google's giant video site, intends to add to its parent's bottom line. "We're really pleased about YouTube's performance, and it's completely in line with what we said in the last call," said Patrick Pichette, Google's CFO. He said YouTube is on "a path to profitability in the not to distant future," adding that the video site is currently monetizing more than a billion video views per week.

Follow Sam Gustin, a reporter for DailyFinance, on Twitter here. Follow DailyFinance's tech coverage here.

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