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Google's breakneck growth continued in the latest quarter, according to figures released on Thursday that showed the internet search engine company once again far exceeded Wall Street estimates.
But Googles shares fell about 7 per cent in after hours trading as the company revealed that margins shrank to 34.4 per cent from 35.2 per cent in the first quarter, adding that they could narrow further. The shares opened nearly 3 per cent lower at $304.81 in New York on Friday.
The fall in the share price came in spite of Prudential Equity Group on Friday lifting its target price fro Google shares to $400, saying the company would continue to produce strong growth.
Google's revenues excluding the costs it pays to other websites for internet traffic the measure on which the market judges its performance jumped to $890m, an increase of 110 per cent from a year before and well ahead of the $842m that had been expected.
Meanwhile, adjusted earnings, the yardstick used by the market, rose to up to $1.36 per share, compared with consensus expectations of $1.21.
The results marked the fourth time that Google, which does not release its own financial forecasts, has topped estimates of even the most bullish Wall Street analysts. They also pointed to a growing gap that has opened up between Google and its nearest competitor, Yahoo reflecting Google's growing share of internet searches and greater success in turning those searches into advertising dollars.
Yahoo! earlier this week reported lower-than-expected revenue growth. Meanwhile, internet tracking service ComScore Networks said Google expanded its share of global Web searches to 55 per cent in April from 47 per cent a year earlier. Yahoo dropped to 22 percent from 25 percent.
Google said its net revenue, which includes traffic acquisition costs, rose 98 per cent to $1.384bn, while reported net income climbed to $343m, or $1.19 a share, compared with $79m, or 30 cents per share, the year before.
Google said its strong results were due to a surge in online search advertising, higher internet traffic and the company's ability to wring more money out of web surfers.
Google said it expected that new products such as Gmail, its local search function and its map service would become very large revenue drivers for the company, although they were not yet at that point.
Ads appearing next to search results on Google's website generated $737m, or 53 per cent of total revenues, an 115 per cent increase over the second quarter of 2004. Revenues from partner sites contributed $630m, or 46 per cent of total sales, an 82 per cent increase over last year.
As expected, Google downplayed expectations for the third quarter. The company stuck to its policy of not providing financial guidance, but noted that the third quarter is usually the most difficult.