Holy Trinity Helps Google Smash Q3 Estimates

Googles third-quarter earnings report smashed a number of expectations, thanks to the holy trinity of search, online ads and applications, according to executives.

The Mountain View, Calif., company reported earnings of $1.07 billion, which represents a 46 percent hike in profit, and $4.23 billion in revenue, a 57 percent increase from a year ago.

Both figures easily surpassed Wall Street figures when they were announced Oct. 18, perhaps justifying the search companys rapid ascension in stock price to more than $650 a share on Oct. 22.

Moreover, Google did this in what CEO Eric Schmidt said is seasonally a weak quarter for the search vendor.

"Its obvious to us that the search quality investments that were making are paying off, particularly internationally," Schmidt said during a conference call Oct. 18 when the numbers were announced. He pointed to the companys new ad types, such as Google Gadget widget ads and video ads.

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He also pointed to a pick up in Googles Apps business, noting that Google is now seeing a "massive transition" to cloud-based computing, or SAAS (software as a service), for both consumers and enterprises.

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Google co-founders Larry Page and Sergey Brin hashed out the specific search, advertising and application innovations that fueled Googles growth.

With search, Googles bread-and-butter, comScore said Google garnered 57 percent of all searches in September, followed by Yahoo, Microsoft and Ask.com. Nielsen pegged Google at 54 percent for the month.

Page said Google has made many search improvements for overseas markets, particularly on the mobile applications front, where Googles Maps application performed well, along with a site that streams YouTube content to mobile devices. Googles iGoogle personalized pages now includes 43 domains, and the companys book search now covers more than 1 million books.

Page also said Googles Maps and Earth geographic search software are doing well. By opening the Maps API (application programming interface), users can put their own functionality into the application in a sort of mashup. Moreover, users can now view YouTube content through Google Earth.

Brin illuminated Googles advertising and Apps improvements, outlining a tool Google is testing called the Conversion Optimizer, which lets advertisers specify how much they want to pay for a customer. Google then rationalizes how much advertisers should bid for customers in Googles signature online ad auctions.

Widgets are also beginning to infiltrate the online ad market. Googles Gadget ad beta lets users put functionality into the ad to make it interactive. For example, Brin said Google is running a Nissan Gadget ad that lets users punch in their zip code to get local traffic reports.

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Moreover, new YouTube in-video ads and AdSense video units are expected to facilitate growth going forward, providing another media source through which Google can help advertisers reach consumers.

"The initial user response rates and feedback have been positive and weve had better click-throughs than we anticipated," Brin said, noting that Google must continue to develop new ad formats to drive growth.

Meanwhile, universities are apparently taking to Google Apps in rapid fashion. Brin said the University of Phoenix boasts 250,000 Google Apps accounts; the search vendor also inked its much ballyhooed Apps deal with Capgemini in Q3.

"The strategy of search, ads and Apps seems to resonate perfectly with this worldwide transition to the use of the Internet on many, many different devices," Schmidt said in his closing comments.

Google will meet with Wall Street analysts at its headquarters Oct 24.

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