Google Q3 fails to impress

Profits treble thanks to cost-cutting, but revenue growth disappoints.

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By  Reuters Published  February 1, 2007

Web search leader Google Inc. said on Wednesday quarterly profit nearly tripled, helped by a lower tax rate and expense controls, but revenue growth failed to impress investors.

Shares in Google fell as much as 3.5 percent in extended trading after the company reported results, though the declines were muted as executives said they would continue major investments in the business to bolster financial results.

"We're going to continue to invest significantly in capital expenses," Google Chief Executive Eric Schmidt told Reuters. "Our financial results in the last couple of quarters were directly related to that 'overinvestment'."

Google is deriving more revenue out of running fewer ads that are more targeted to specific audiences on the Web, Schmidt told investors on a conference call.

Growth will also be boosted by Google's growing business outside of its established U.S. and British markets, partnerships with affiliate networks, and its expansion into radio, video and mobile ad formats, he said.

Google's revenue grew 67 percent in the fourth quarter to $3.21 billion, compared with average analysts' estimate of a 64 percent year-on-year increase to $3.14 billion, according to Reuters Estimates.

Revenue growth is closely watched as investors gauge Google's ability to capitalize on Web advertising against rivals such as Yahoo Inc. and Microsoft Corp.

Some analysts had predicted Google would significantly beat expectations for the quarter, with data showing the company continued to gain share in search queries and on weaker growth at Yahoo, which is moving its clients to a new ad system.

"The stock is down because they didn't blow out the numbers. Expectations have come up recently," said Martin Pyykkonen, analyst at Global Crown Capital. "They gained share relative to Yahoo in paid search but not by a wide margin."

Google's net income grew to $1.03 billion, or $3.29 per share, from $372.2 million, or $1.22 per share a year ago.

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