Invest with Goog Now to Become Richer

(GOOG) said Thursday its second-quarter earnings rose a surprisingly robust 36% on record revenue as the Internet giant experienced strength in its core search business and gained traction with its newer operations. The results sent Google shares surging in after-hours trading. The stock hit levels not seen in regular-session trading since March and recently was up 13% to $595.15. Through Thursday's close, the stock had fallen 11% this year, and shares had declined after five of the past seven earnings reports. The second quarter marks the first quarter with co-founder Larry Page firmly installed as chief executive, a role he assumed with hopes of improving Google's agility and innovation. The Mountain View, Calif., company has been investing heavily in employee hiring and compensation, as well as new products--something that has led to higher operating expenses and concerns among investors. "The new management team is working together fabulously, and has already achieved a lot in just these three months," Page said on the company's conference call. Page pointed to the launch of the company's new social network, Google+. He said more than 10 million people have joined the network and that more than 1 billion items are being shared and received in a single day. "So while we still have a lot of work still to do, we are really excited about our progress with Google+," Page said. For the second quarter, Google posted a profit of $2.51 billion, or $7.68 a share, up from $1.84 billion, or $5.71 a share, a year earlier. Excluding stock-compensation costs and income-tax effects, per-share profit rose to $8.74, up from $6.45 a year ago and above the average analyst estimate of $7.85 on Thomson Reuters. Revenue increased 32% to $9.03 billion. Traffic-acquisition costs--the commissions paid to marketing partners--comprised 24% of ad revenue. After the costs, revenue rose 36% to $6.92 billion, above the Thomson Reuters estimate of $6.55 billion. Chief Financial Officer Patrick Pichette noted the revenue strength was driven not only by Google's core desktop search ads but also by new areas, such as mobile display and YouTube. "Google had a very impressive bottom-line beat," Benchmark analyst Clayton Moran said. The size of the beat "implies not only strong revenue growth but that expenses weren't out of control." Nonetheless, Google's costs continue to grow. Total costs climbed 38%, a slightly faster clip than the latest period's revenue growth but tamer than the first quarter's 46% gain in costs. Previously, Google's surging investment in new products, advertising, hiring and worker compensation had hurt profitability. Google continues to hire aggressively, adding 2,452 employees in the second quarter, which includes 450 from the acquisition of flight-data company ITA Software. On the conference call, Page acknowledged that Google, which also hired 1,916 workers in the first quarter, is ahead of its hiring pace for the year. "I'm happy with the investments we have made in people, though we are probably even a little ahead of where we need to be with headcount growth, at the edge of what is manageable now," Page said. Operating expenses, other than cost of revenues, were $2.97 billion in the second quarter, or 33% of Google's revenue, up from $1.99 billion a year ago, or 29% of revenues. "The core Google sites business is performing very well," Moran said. "They just in general had really significant outperformance." Search ads--the company's primary source of revenue--continued to strengthen. U.S. paid clicks, a measure of how frequently consumers click on its ads, were up 18% compared with a year earlier and 2% sequentially. The average cost that advertisers paid Google per click grew 12% over a year earlier and 6% from the previous quarter. That is a higher rate of growth than in recent periods. Meanwhile, Page said traction for Android, Google's mobile operating system, is accelerating, with 550,000 Android phones activated daily. And Susan Wojcicki, senior vice president of advertising, said there are now 135 million activated Android phones in total, up from 100 million a couple months ago. She noted that Android Market, which has 250,000 different apps available, has had more than six billion downloads. Page also acknowledged the need to balance short-term results with longer-term goals, saying Google will continue the tight financial management it has had in the past couple years even as it makes "significant investments in our future." "Our emerging high-use products can generate huge new businesses for Google in the long run, just like search," he said. "We have tons of experience monetizing successful products over time."