Ad sales drive up Google's profit and revenue in Q2

Google Inc. saw its revenue and net income shoot up in its 2005 second fiscal quarter, ended June 30, as its online ad sales continued to grow strongly, the Mountain View, California, search engine company announced Thursday.

Google had revenue of US$1.38 billion, up 98 percent compared with 2004's second quarter. Excluding $494 million that Google paid to its ad network partners, a portion of revenue often called traffic acquisition costs, revenue was $886 million.

Meanwhile, net income was $343 million, or $1.19 per share, compared with net income of $79 million, or $0.30 per share, in 2004's second quarter.

Revenue from Google sites added up to $737 million, up 115 percent, while revenue from Google ad network partners totaled $630 million, an increase of 82 percent.

"We had a very strong quarter. U.S. business and international business [were] very strong, numerous product introductions, and very strong user adoption across the board," said Eric Schmidt, Google's chairman and chief executive officer, in a conference call to discuss the results.

"The online advertising market continues to grow and we continue to attract advertisers based on the ROI [return on investment], accountability and scale of our ad network," said Sergey Brin, Google co-founder and technology president.

Google remains "intently focused" on business opportunities outside the U.S., said Chief Financial Officer George Reyes, adding that in the second quarter, international operations made up 39 percent of the company's total revenue. Currently, Europe is "by far" the largest of Google's international markets, Reyes said.

The company also continues to address the problem of click fraud, and it has been able to keep it under control, Reyes said.

Click fraud is a practice in which individuals click on pay-per-click online ads with malicious intent. For example, an individual may click on competitors' ads, knowing that every time he does that, it costs his competitors money. Or the publisher of a Web site may click on his site's ads to earn more commission.

"This is an issue we take very seriously and we continue to resource accordingly. Thanks to the efforts of our team, it has never been a material problem for Google. We work very hard to make sure that it stays that way, but we can't promise that we will be able to prevent all instances of click fraud. We're very pleased with the results to date," Reyes said.

Another area Google is focusing on is video search and indexing, through its Google Video search engine and its playback mechanism. In the next 12 months, Google plans to make significant progress in deals with video content owners and plans to introduce new products and services in this area, Schmidt said.

Much effort is also going into building up Google's local search services, which include its Google Local index of business listings, as well as its Google Maps mapping service and the accompanying Google Earth desktop application for navigating through satellite and aerial images of the U.S. and other countries, Brin said.

Work is also under way on the Orkut social networking service, which remains in restricted mode, available only via subscriptions. Orkut has become extremely popular in Brazil specifically, and it is helping drive adoption of other Google services, Brin said.

Google is ramping up efforts in its mobile search division, in advance of the expected introduction of more powerful and feature-rich handsets in the U.S. in the second half of this year, said Larry Page, co-founder and products president.

"There's tremendous promise on all sorts of mobile services. We're getting very significant usage on many of our mobile services. I couldn't be more excited about the things that are going to happen in a pretty short term, in the next couple of months, around mobile search," Page said.

Finally, Schmidt said Google's plans to develop its own online payment service will not try to replicate or compete with PayPal Inc. and similar services.

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