Mark Lennihan
Google Inc.'s attempt to catch up to rival Facebook Inc. in the race for social networking dominance got a boost on Thursday, as the search giant's second-quarter results easily beat analyst expectations.
The company posted revenue of $9.03-billion (U.S.) for the quarter ended June 30, 2011 - a 32-per-cent increase from the same period last year. Profit in the second quarter rose to $2.51-billion or $7.68 a share, from $1.84-billion or $5.71 a share in the year-ago period. Excluding stock option costs, share profit for the quarter was $8.74. Analysts had expected profit of $7.86, according to Thomson Reuters I/B/E/S.
The results were largely driven by Google's core search advertising business, even as it expands into other areas, such as daily deals and social networking.
The better-than-expected results sent Google's stock price soaring more than 10 per cent in after-hours trading on Thursday to $595, as the company's new chief executive officer sought to focus attention on Google's new social networking and sharing tool, Google+, and its new management structure, which he described as greatly enhancing "velocity and execution."
Larry Page, a Google co-founder who took over as CEO earlier this year - part of a move to create a more straightforward decision-making process at the company - said his focus is on putting "more wood behind fewer arrows." Google executives began using that mantra following the global recession in 2008 and 2009, when the company began cutting what it viewed as non-core projects.
Mr. Page said that while Google still continues to invest in some speculative projects, such as driverless cars, the amount of money it spends on those projects is relatively minor.
"We are very careful stewards of investor money," he said. "We're not betting the farm on this stuff."
Mr. Page also outlined a slightly different viewpoint on how he groups Google's various products. He divided the company's services into three categories: the core search ad business; consumer-oriented products such as YouTube and the Android and Chrome operating systems; and new products such as Google+ and local-based tools.
The solid second-quarter results are a turnaround from Google's first-quarter numbers, announced in April. Those results fell below analyst expectations, sending the stock down (before Thursday, the share price had dropped about 15 per cent since mid-January).
It has been a somewhat difficult first half of the year for the search giant. Earlier this month, Google's attempt to purchase Nortel Networks' massive patent chest fell short, after a consortium of companies led by Apple Inc. and Research In Motion Ltd. made the winning bid in a fierce, multi-day auction. The loss was especially significant for Google because, unlike many of its large competitors, the company doesn't have a relatively large store of patents. And as the company becomes mired in more and more intellectual property lawsuits related to its Android operating system for mobile devices, such patents become increasingly important.
The company has also seen more regulatory and legal hurdles. The U.S. Federal Trade Commission has launched an antitrust investigation targeting the company. In Europe, it is also the subject of an antitrust complaint related to its perceived dominance in the continent's search market.
However there has been some significant good news in recent weeks. Most notably, Google+ has received generally positive reviews. The new service is part of Google's attempt to fight back against social networks, including Facebook, that have been slowly stealing Web search traffic, as more and more users come to rely on their friends' recommendations rather than algorithmic search results.
After the failure of previous social products, such as Google Wave, Google+ appears to be the most important new service within the company. Although Mr. Page sought to appease investors by saying the company is focused on the main areas where it makes money, he pointed out that it's often difficult to tell which new endeavours will eventually become profitable.
"When we started doing search, people thought we were crazy," he said. "It feels like we're watching the same movie again in slow motion."