Google’s revenues up 100% on European gains

Google on Thursday shook off the last of the concerns that had hung over it since its rare earnings disappointment in January, reporting a re-acceleration in its core revenue growth and an unexpected fattening of its profit margins in the first three months of this year.

With international markets, particularly in Europe, showing headlong expansion, the company’s net revenues jumped by 100 per cent, ahead of the 85 per cent growth expected by Wall Street.

Pointing to the growing power of Google’s brand around the world, Eric Schmidt, chief financial officer, said: “I don’t think it’s appreciated how big our reach is. Europe did exceptionally well for us this quarter.” The proportion of revenues that came from outside the US rose to 42 per cent, from 38 per cent only three months before, the company said.

Google’s shares jumped by more than 7 per cent in after-market trading on Thursday on the new that it had returned to the sort of outperformance that had characterised its quarterly earnings announcements since it went public in August 2004.

The shares had already rebounded from the 22 per cent loss they suffered in the wake of January’s disappointing earnings news, and by late Thursday were back within 6 per cent of their all-time high.

Underpinning the search engine company’s latest growth was a jump in search traffic on its own websites, reflecting the power of its brand name, particularly outside the US.

Google’s reported revenues, under US accounting rules, grew by 79 per cent to $2.25bn, a slowdown from the 86 per cent of the preceding quarter: however, with more of the business coming from its own branded sites rather than through other web sites that carry its search results, the company’s net revenues (excluding traffic acquisition costs) doubled to $1.527bn. Most analysts had expected growth of around 85 per cent.

The increase in revenues contributed to a two percentage point increase in Google’s pro-forma operating profit margin, to 39 per cent, despite widespread expectations that profits would suffer as the company rushed to expand its range of products and strengthen its operations around the world pushed up its costs.

However, George Reyes, chief financial officer, warned that investors should sill expect a “compression” of margins as spending increases in future.

The European expansion was helped by a rebound in Google’s UK search advertising business, which had suffered from and slowdown late last year. An improvement in travel and financial services advertising had lifted UK revenues to $343m, or 15 per cent of total revenues, up from 14 per cent in the previous quarter, said Mr Reyes.

Reported net income rose 59 per cent to $592m, or $1.95 a share. Pro forma earnings per share, the basis on which Wall Street assesses the company, increased to $2.29 from $1.59 in the fourth quarter of last year, well above the $1.76 a share that analysts had expected.