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Google Shares Rise On Strong 3Q Performance

Co-founder Sergey Brin said Google should benefit from the tough times as the company now indexes as much information every four hours as is contained in the Library of Congress.

Google shares surged on Thursday after the search company delivered third-quarter financial results that exceeded analysts' expectations.

The search company Thursday reported third-quarter 2008 revenue of $5.54 billion, a 31% increase compared with its third quarter in 2007 and a 3% increase compared with the $5.37 billion the company reported for its second quarter of 2008.

Google's EPS after subtracting traffic acquisition costs came to $4.92 for the quarter. Citi Investment Research anticipated $4.79 per share.

"We had a good third quarter with strong traffic and revenue growth across all of our major geographies thanks to the underlying strength of our core search and ads business," Google CEO Eric Schmidt said in a statement. "The measurability and ROI of search-based advertising remain key assets for Google. While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display."

"We had another solid quarter despite a challenging economic environment," said CFO Patrick Pichette on a conference call for investors.

One bright spot is the ongoing decline of Google's traffic acquisition costs (TAC), the percentage of revenue that Google pays to its AdSense publishing partners. Google's TAC in the third quarter of 2006 was 31%. In the third quarter of 2008, it came to 27.9%.

Schmidt, on the conference call, acknowledged the economic turmoil affecting the world at the moment. "It's clear that the economic situation is so fluid, we're all in sort of uncharted territory," he said. At the same time, he said Google should benefit from the tough times. "As marketing budgets are squeezed, measurable ads become more desirable," he said.

Google co-founder Sergey Brin highlighted the company's ongoing search improvements and product releases. He said that Google remains committed to search and that its index continues to grow. Google introduced more than 100 search improvements during the quarter, more than one per day, he said. The company now indexes as much information every four hours as is contained in the Library of Congress, he said.

"We've also been working hard on display ads," said Brin, noting that Google's integration of DoubleClick has gone well.

Google on Thursday introduced a new online display ad-creation tool for its AdWords advertising customers.

Pichette also said that Google would continue to invest heavily in capital expenditures, which may put pressure on Google profits going forward.

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