At Google, a Boost From E-Commerce

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Google’s strong fourth-quarter earnings proved that it is now firmly ensconced in e-commerce, and also showed that, with its Android operating system and related apps, it is smoothly transitioning to the mobile world.
Multimedia But that news, reported on Thursday, was quickly followed by the announcement that Larry Page, a Google co-founder, will replace Eric E. Schmidt as chief executive in April.

The move marks a return to the helm of the company for Mr. Page, who left the role in 2001 when Google was still a private company. Mr. Schmidt will become executive chairman, focusing on outside partnerships and government outreach, the company said.

The upheaval at the top may have overshadowed the earnings report, but the numbers were good. Google benefited from the best online holiday shopping season since 2006, as Web users increasingly began their shopping sprees at the search engine.

“Whenever e-commerce improves, we see more advertisers competing for the same keywords, and that means more revenue for Google,” said Sandeep Aggarwal, an Internet analyst at Caris & Company.

To make it easier for shoppers to find what they were looking for, Google in the run-up to the holiday season introduced tools like Boutiques.com and search results that showed which offline stores have an item in stock. It also began offering retailers product ads with images.

Google reported on Thursday that net income in the quarter ended Dec. 31 was $2.54 billion, or $7.81 a share, up from $1.97 billion, or $6.13 a share, in the year-ago quarter. Excluding the cost of stock options and the related tax benefits, Google’s fourth-quarter profit was $8.75 a share, up from $6.79.

The company said revenue climbed 17 percent, to $8.44 billion, from $6.67 billion a year earlier. Net revenue, which excludes commissions paid to advertising partners, was $6.37 billion, up from $4.95 billion.

“Our strong performance has been driven by a rapidly growing digital economy, continuous product innovation that benefits both users and advertisers, and by the extraordinary momentum of our newer businesses, such as display and mobile,” Mr. Schmidt said in a statement.

While Google’s e-commerce offerings drove its search business during the quarter, the company also began to convince investors that it is successfully moving into new businesses, particularly mobile and display ads.

On a call after the earnings report, Jonathan Rosenberg, senior vice president for product management, said the winners of 2010 were Google’s display advertising business, which now has two million publishers; YouTube, where revenue doubled; businesses that have begun using Google products; and Android, with 300,000 phones activated a day.

Mr. Rosenberg also said there were 10 times as many searches year over year done from Android devices, which translates into advertising revenue for Google.

Google has been selling display ads, those with images and sometimes video, on YouTube and other Web sites. The company does not break out display ad revenue, but eMarketer, a research firm, estimated that Google accounted for 13.4 percent of display ad revenue in the United States last year, up from 4.7 percent in 2009. Meanwhile, Yahoo, the market leader, lost share, eMarketer said.

Google’s mobile business is particularly promising, analysts said, as people increasingly neglect the laptops on their desks for the phones in their pockets.

For Google to maintain its dominance, it has needed to follow them, which it has been doing with apps to search the Web on the go, look up directions, watch videos, find local businesses and even make phone calls.

This year, Mr. Rosenberg said, the company will focus on products that allow people to access local information on mobile phones, as well as commerce, adding that the two are tied together.

“They key to unlocking mobile commerce was to make it easier for people to both search and then consummate the transaction on the mobile device,” he said.

“As smartphones become ubiquitous and local businesses put their inventory online, I think this will be the year that smartphones” change the way commerce is done, he added.

Still, other Google businesses have yet to find success. Google TV has faced delays and poor reviews; the Justice Department is still deciding whether to permit Google to acquire the flight software company ITA; and analysts are watching closely to see if the iPhone’s debut on Verizon affects sales of Android phones.

Also, analysts expressed concern about Google’s spending; the company is continually hiring and paid more than $2 billion for a building in New York to house growing operations.