Google's Ad Rates Push Profit Toward $17.07 a Share  

Posted by Mohammad Talha in

By Crayton Harrison and Whitney Kisling

Google Inc.'s ability to raise the price of Internet financial-services advertising by an average 19 percent may help the most widely used search engine overcome a U.S. economic slump and lift profit to $17.07 a share this year.

Customers most constrained by the slowdown, including mortgage companies, are paying the biggest increases, according to Efficient Frontier Inc., an Internet ad agency that tracks industrywide statistics. Rates for home-loan companies in June were 35 percent higher than at the end of last year. Retail, the biggest category of Web advertising, saw prices rise 9.3 percent.

Google is able to charge the higher rates because it can guarantee that shoppers most likely to make a purchase will see the ad, thanks to its software, said Citigroup Inc. analyst Mark Mahaney in San Francisco. The pricing power may help Chief Executive Officer Eric Schmidt, 53, push the shares up by 25 percent, according to a Bloomberg survey of 23 analysts.

``I don't think this is a bulletproof business model, but it has got better armor than other advertising and marketing vehicles,'' Mahaney said. He is ranked third among Internet analysts by Institutional Investor magazine and named Google his favorite stock for long-term investors last month. The shares have fallen as much as 40 percent this year.

Second-Quarter Results

Higher ad prices may be behind a jump in Google's second- quarter profit. The Mountain View, California-based company will today report a gain of 38 percent to $1.28 billion, or $3.99 a share, according to the Bloomberg analyst survey. Net sales are likely to climb 42 percent to $3.87 billion. The company may earn $17.07 a share this year, up 28 percent from 2007.

This is, nevertheless, the first substantial economic slowdown that Google has faced in its four years as a public company. Clicks on ads rose 20 percent in the first quarter, following 52 percent growth a year earlier, Google said in April. The decline in growth is at least partly attributable to the nation's business malaise, Mahaney said.

``No company can be completely immune when the economic pressures are wide-ranging and far-reaching,'' said Mark May, an analyst at Needham & Co. in New York. He still recommends buying Google shares, which he doesn't own. (full Story Link)


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