Google's Billion Dollar Quarter Beats Estimates, Sending Shares Higher

Google reported its first quarter earnings after yesterday's close, topping both the Street's EPS and revenue estimates. Shares rose 3.2% in after hours trading to $486.80 on strong volume of 11.2 million shares. Excluding one-time items, EPS came in at $3.68 (net of $1 billion), while revenue was $3.7 billion, or $2.53 billion after subtracting advertising commissions and other payments to its partners. Both numbers beat consensus analyst forecasts, which called for EPS of $3.30 on revenue of $2.49 billion. The company's billion dollars in net income was largely derived from search advertising revenue. According to researcher eMarketer, Google will account for an estimated 75% of all U.S. search ad revenue this year, versus just 16% for rival Yahoo. According to American Technology Research analyst Rob Sanderson, as quoted by the AP, "Google's quarter wouldn't have been as impressive without a favorable tax rate of 26% during the first quarter - below the company's projected rate of roughly 30% for the entire year." Sanderson believes Google's EPS would have actually fallen $0.18 had its first quarter tax rate been 30%. On the conference call, CEO Eric Schmidt said he was "ecstatic about our results." Google also announced that in addition to his duties as CEO, Schmidt would now also serve as Chairman of the Board.

Sources: Google Q1 2007 Earnings Call Transcript, Press Release, AP, Wall Street Journal, USA Today
Commentary: Google "Ecstatic” On Q1 Results • Bullish on Google: Consistent Growth, Deserving of a High Premium • Stifel: Google Is Now A Value Stock • Google Continues to Dominate Internet Search
Stocks/ETFs to watch: Google, Inc. (GOOG), Microsoft Corp. (MSFT), Yahoo! Inc. (YHOO), IAC/InterActiveCorp (IACI). ETFs: First Trust Dow Jones Internet Index (FDN), Internet HOLDRs (HHH), First Trust IPOX-100 Index (FPX)

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