Google Shares Soar on Strong Earnings

SAN FRANCISCO (April 18) - Google Inc.'s stock soared 20 percent Friday, restoring $28 billion (17.64 billion) in shareholder wealth as Wall Street renewed its love affair with the Internet search leader after weeks of worry about an online advertising slowdown.

Driven by stellar first-quarter results that surprised industry analysts, Google shares surged $89.87 to finish at $539.41. It marked the biggest one-day gain since Google's initial public stock offering in August 2004, leaving the shares at their highest closing price since January.

Google had lost favor with investors as Web surfing data and the faltering U.S. economy raised concerns that people aren't clicking as frequently on the Internet advertising links that generate most of the Mountain View-based company's revenue.

The trend threatened to chip away at Google's earnings because the company typically gets paid by the click.

Although there were signs of decelerated clicking in the United States, Google more than offset any negative effects by expanding its foreign business and tweaking its online ad system in a way that helped reap more revenue per click.

The first-quarter performance reinforced the belief that Google is a "must-own stock," American Technology Research analyst Rob Sanderson wrote in a Friday note.

"While (economic) concerns won't be completely dispelled, we believe the growth story remains intact and investors will again fall in love," he wrote.

Dinosaur Securities analyst David Garrity also is convinced that the worst is over for Google's stock, which was down 35 percent in 2008 before the first-quarter earnings changed investor sentiment.

"We think (Google's stock) has seen its 2008 low. Onward and upward," wrotegest chunk of online advertising.

Google ended the first quarter with a 60 percent share of the U.S. search market, up from 58 percent at the end of the fourth quarter, according to comScore Media Metrix. Yahoo was in second at a 21 percent share followed by Microsoft at 9 percent.

Despite the challenges ahead, Google still has ample opportunities to grow as advertisers shift more of their spending to the Internet from other media like newspapers, magazines, radio and television.

The Internet is expected to capture about 7 percent, or $44 billion (27.72 billion), of the total worldwide advertising market this year. Analysts say the percentage of Internet advertising lags behind the amount of time consumers are spending online, suggesting that marketers will need to ramp up their spending even more if they want to reach potential customers.

Google also has been adding more advertising vehicles to supplement its search engine. Just last month, the company bought DoubleClick Inc. for $3.2 billion (2.02 billion) in an effort to sell more graphical advertising. And Google is starting to show more video advertising through its increasingly popular clip-sharing site, YouTube.com.

Finally, the first quarter represented a tipping point in Google's maturation into an international company that's becoming less vulnerable to the ups and downs of the U.S. economy. Google collected most of its first-quarter revenue outside the United States, the first time that has happened in the company's 9 1/2-year history.

Besides diversifying its business, the higher international revenue should also help boost Google's profit because it should keep company's tax rate slightly lower than it has been in past years.

Google Chief Executive Eric Schmidt left little doubt he expects the company to prosper as he hailed the first quarter results.

"It's clear we are well positioned for 2008 and beyond, regardless of the business environment we are surrounded by," Schmidt told analysts.