Google's Q3 eases fears over ad market, costs

Google Inc's results trounced Wall Street expectations with the help of strong advertising sales and deft cost controls, driving its shares nearly 7% higher.

The Internet search and advertising leader, benefiting from an expanding online ad market and sharper focus in research, increased its profit by 26% and revenue by 37% in the third quarter.

A darkening economic outlook -- particularly in Europe, had stoked worries about advertising growth. But Google's revenue and paid-clicks performance boded well for the fourth quarter, analysts said.

Shares of Google rose to USD 597.93 in extended trade after closing 1.91% higher on Nasdaq.

"The real interesting thing here is the expenses that weren't as high as the Street was anticipating. R&D was less than we were expecting," said UBS analyst Brian Pitz. "This is the fourth quarter in a row the company has accelerated their revenue on top line."

Chief Executive Larry Page -- who assumed the top job this year and had to contend with fears on Wall Street he would let costs spiral out of control -- has begun whittling down Google's sprawling portfolio of initiatives and projects.

On a conference call with analysts, he said the company would instead divert resources to projects with higher potential returns.

"We have to make tough decisions about what to focus on, or we end up doing things that don't have the impact that we strive for," Page said. "Since we last spoke we've begun the process of shutting over 20 different products."

The company is ploughing money into its fast-growing mobile business and increasingly competing with Apple Inc. Google's Android mobile software, already the world's most-used smartphone platform, is gaining momentum. It powers 190 million devices, up from 135 million in mid-July.

Going mobile - In a big way?

Page said the revenue run rate for Google's mobile business is more than USD 2.5 billion, a significant leap from $1 billion just a year ago.

In August, Google announced plans to acquire Motorola Mobility Holdings for USD 12.5 billion. The deal, which Google expects to close this year or early 2012, will give it one of the wireless industry's largest patent libraries, as well as hardware manufacturing operations that will allow Google to develop its own line of smartphones.

But analysts and investors worry that Google is entering a low-margin business in which it has no experience. A move to build its own phones could also jeopardize support for Google's free Android mobile software from other phone manufacturers such as Samsung Electronics and HTC Corp.

Google said its net income in the three months ended September 30 grew to USD 2.73 billion from USD 2.17 billion in the year-ago period.

Excluding certain items, Google said it earned USD 9.72 per share in the third quarter. Analysts polled by Thomson Reuters I/B/E/S were expecting adjusted EPS of USD 8.74.

"A lot of people were expecting spending to be out of control, but they had good control," said Herman Leung, an analyst with Susquehanna Financial Group.

Google's recently launched social networking service, Google+, is also on investor radars. Its effort to challenge Facebook's dominance in the red-hot social networking market got off to a fast start in June, collecting 10 million users in the first two weeks.

On Thursday, it said it had signed up more than 40 million users for its recently launched Google+ social network.

Its third-quarter net revenue, which excludes fees that the company shares with partner websites, increased 37% year-on-year to USD 7.51 billion. Analysts were looking for USD 7.22 billion in net revenue.