On Oct. 18, search and marketing giant Google (NASDAQ:GOOG) released third-quarter earnings for the period ended Sept. 30. The results?

  • Build a great search engine and the users will come. And then you just have to monetize that service-to-user relationship -- which happens to be the company's other core competency. The result is a 57% yearly revenue jump, coupled with strong profits.
  • The margin slide comes from a hiring spree over the summer, where the company picked up a crop of college graduates while their caps and gowns still had fresh champagne stains. Google added more than 2,100 new employees in the quarter, including about 300 in the Postini acquisition, and most of them set up camp in the engineering and sales/marketing department.
  • While the stock may look expensive at more than $630 per stub, given the earnings improvements, that's a trailing P/E ratio of around 50. Compare that to the likes of fellow e-commerce giants Amazon (NASDAQ:AMZN) and Baidu (NASDAQ:BIDU), which have trailing P/Es of 124 and 188, respectively.

(Figures in millions, except per-share data)

Income Statement Highlights

Q3 2007

Q3 2006

Change

Sales

$4,231

$2,690

57.3%

Net Profit

$1,070

$733

45.9%

EPS

$3.38

$2.36

43.2%

Diluted Shares

316.6

310.6

1.9%

Get back to basics with the income statement.

Margin Checkup

Q3 2007

Q3 2006

Change*

Gross Margin

60.7%

61%

(0.3)

Operating Margin

31.1%

34.6%

(3.5)

Net Margin

25.3%

27.3%

(2.0)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q3 2007

Q3 2006

Change

Cash + ST Invest.

$13,087

$10,429

25.5%

Accounts Rec.

$1,888

$1,031

83.1%

Liabilities

Q3 2007

Q3 2006

Change

Accounts Payable

$232

$207

11.8%

Long-Term Debt

$0.0

$0.0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q3 2007

Q3 2006

Change

Cash From Ops.

$1,633

$1,004

62.6%

Capital Expenditures

$553

$492

12.3%

Free Cash Flow

$1,080

$512

110.9%

Owner Earnings

$767

$387

98.2%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating (out of 5) 

Google

$197,731

49.1

**

Yahoo! (NASDAQ:YHOO)

$38,826

54.3

**

Microsoft (NASDAQ:MSFT)

$292,959

21.8

**

Focus Media Holding (NASDAQ:FMCN)

$6,297

59.5

****

Omnicom Group (NYSE:OMC)

$17,344

19.3

****

Source: Yahoo! Finance.

Related Foolishness:

Microsoft is a Motley Fool Inside Value recommendation, while Yahoo! and Amazon.com are Motley Fool Stock Advisor picks. Baidu is a Motley Fool Rule Breakers selection. Try any of our newsletters free for 30 days with no strings attached.  

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At the time of publication, Anders Bylund was a happy Google shareholder, but had no other position in any company mentioned. Fool rules are here.