Google’s non-search services pay off

Fears that Google would allow its costs to spiral upwards as it prepared for a new wave of expansion proved unfounded in the company’s lastest quarter, as a jump in revenues and tighter controls led to earnings that comfortably beat analysts’ forecasts. The company’s shares jumped 8 per cent in after-market trading.

The internet search company reported a 25 per cent jump in net revenues to $5.48bn as advertising continued to bounce back strongly from the downturn. Wall Street had been expecting a rise of only 20 per cent in net revenues, which are calculated after deducting the $1.81bn in traffic acquisition costs Google paid to other internet companies that generated some of its search traffic.

Operating expenses, meanwhile, rose 34 per cent as the company continued to boost its spending on sales and marketing and on research and development. Headcount also continued to rise swiftly, rising by around 1,500 to 23,331 in the period.

However, other costs, such the expense of running datacentres, rose at a more moderate rate, enabling the company to report a 23 per cent increase in operating income to $2.55bn. While investors had feared a decline in the company’s profit margins, Google said its pro-forma operating income, as a percentage of revenues, held steady at 40 per cent compared to a year before.

Pro-forma net income, which investors use to assess the company’s performance, jumped to $7.64, compared to the consensus analyst forecast of $6.67. That was up from $5.89 a year before.