Google exceeded Wall Street expectations last night by reporting net income up 32% in the third quarter.
The numbers cheered investors who spent the day spooked by the tumbling value of the dollar, and concerned that Google's recent spending on acquisitions and hiring 1,500 staff would undermine its earnings.
Instead, the firm said its strong figures relied on businesses spending more on advertising for online consumers. But the willingness of businesses to advertise does not necessarily suggest US consumers are ready to spend again after two years de-leveraging record household debt levels.
Google said net income to 30 September rose to $2.17 billion, or $6.72 cents a share, from a year earlier. The company said revenue climbed 23% to $7.29bn. Wall Street had been expecting $6.67 a share and net revenue of $5.2bn. Shares jumped nearly 10% to $592 in after-hours trading.
"Our core business grew very well, and our newer businesses, particularly display and mobile, continued to show significant momentum," Eric Schmidt, Google's chief executive, said in a statement. "We remain committed to aggressive investment in our people and our products as we pursue an innovation agenda."
Google has been offering glimpses of its expanding investment agenda: a $5bn investment in a sub-sea wind farm transmission lines off the eastern US coast, driver-less electric cars, and has more than quadrupled spending on data centres and technology compared with a year earlier.
Chief finance officer Patrick Pichette defended Google's aggressive hiring programme, telling investors that Google is in "a war for talent" that is "quite out of sync with what's happening in the rest of the economy."
Even with growth of 23% over the past year, Google is not growing as fast as it once did. Investment analysts wanted to hear of the company's plans in search-linked advertising, market penetration of its Android mobile phone platform, and advertising development in its YouTube and Google TV division. Last night, Google refused to say if YouTube, with 2bn "monetised" views, is profitable.
The company said paid clicks on ads on Google sites and other sites that run Google ads grew 16% over the same quarter a year ago. Yet analysts cautioned against viewing Google's numbers as an optimistic signal for the US economy. Online advertising is growing – up from 12% to 15% of total spending since 2008 – despite the uncertain economic recovery.
"We're going to see continued growth regardless of how the economy is doing," said Richard Fetyko, an analyst at Merriman Curhan Ford & Co.
Google's market share in its core search business is up to 66.1%, while Yahoo has fallen to 16.7% from 17.4%, and Microsoft's Bing remains essentially static at 11.2%.
The firm implicitly acknowledged that "social search" – search linked to personal preferences or the preferences of the searchers' social group – is a key goal. Facebook and Bing announced an alliance pointed in this direction; last night, Schmidt said the firm was planning to add "additional social-ranking clues".