Shares of Google Inc. (GOOG) surged 12.5 percent to a new high Wednesday as the online search engine leader continues to confound the skeptics who thought the company would sputter after striking it rich in a closely watched IPO last summer.

The company reported after the stock market closed Tuesday that its fourth-quarter profit improved sevenfold from the previous year, much to Wall Street's delight.

Google settled up 7.3 percent, or $14.06, to $205.96 on the Nasdaq Stock Market (search). That topped their previous peak of $205.30 since Google's IPO, which was priced at $85 after the company couldn't persuade enough buyers to pay its original target range of $108 to $135.

The owner of the world's most popular search engine earned $204.1 million, or 71 cents per share, during the final three months of 2004. That compared to net income of $27.3 million, or 10 cents per share, at the same time in 2003.

Revenue for the period totaled $1.03 billion, more than doubling from $512.2 million in the prior year. After subtracting commissions paid to other Web sites in its advertising network, Google's fourth-quarter revenue worked out to $653.5 million, more than doubling from a comparable figure of $296 million in the previous year.

If not for a $60 million charge to cover stock compensation paid to its employees, Google would have earned 92 cents per share, unadjusted from income taxes. That figure exceeded the mean estimate of 77 cents per share among analysts surveyed by Thomson First Call. It marked the second consecutive quarter that Google has blown by analysts' earnings estimates since the company's initial public offering of stock nearly six months ago.

Google's lofty opinion of itself looks reasonable now, said, said ThinkEquity Partners analyst John Tinker. "Everybody thought they would take the eye off the ball after the IPO, but what they are showing is that they are just getting stronger," Tinker said.

Google is thriving because more advertisers are paying a steadily rising price to have their Web links displayed alongside search results. The advertisers pay Google and its partners, which include AOL and Ask Jeeves Inc., whenever visitors click on the commercial links.

"The model that we have built over the years is working very, very well right now," Google CEO Eric Schmidt said during an interview Tuesday.

Google's stock has emerged as one of the nation's priciest because investors are betting the company's iconic search engine will continue to attract hordes of advertisers, producing breakneck earnings growth.

As 2004 wound down, some analysts began to warn Google couldn't sustain its recent momentum, reasoning stiffer competition and shifting Web traffic would erode profit margins. Google instead became even more profitable during the fourth quarter and "one could argue there is still plenty of headroom here," said Caris & Co. analyst David Garrity. "Granted, nothing can grow to the sky, but there doesn't appear to be much of a ceiling for Google right now."

Based on Tuesday's closing stock price, Google's market value stood at $55 billion — more than General Motors Corp. (GM) and Ford Motor Co. (F) combined. Google's stock carries a price-to-earnings ratio of nearly 230, an extremely high multiple for a measure that is widely used to appraise a company's value. By comparison, other well-known — and older — Internet companies such as Yahoo Inc. (YHOO), Amazon.com Inc. (AMZN) and eBay Inc. (EBAY) have price-to-earnings multiples ranging between 58 and 68.

Google employees, hundreds of whom have become paper millionaires, will get another chance to cash in on the company's success Feb. 14 when IPO selling restrictions on 176.8 million shares of stock held by insiders are lifted. Analysts doubt the potential release of more shares into the market will depress the stock, based on how the price held up with the previous expiration of selling restrictions on 93.5 million shares between September and mid-January.

Here's just one of the reasons Google's stock has become such a hot commodity: the company's fourth-quarter revenue rose 28 percent from the third quarter, an unusually robust growth rate for a company its size.

Investors are focusing on Google's sequential quarterly growth for signs of a sales slowdown — something that hasn't cropped up yet. Google's growth curve is outstripping Yahoo's — the rival to which it is most often compared. Yahoo's fourth-quarter revenue increased 19 percent from the third-quarter.

In another bullish sign, Google generated 51 percent — $530 million — of its fourth-quarter revenue from its own Web sites. Advertising on its own sites is more valuable to Google because it doesn't have to share the money with its business partners.

Google's success has intensified the competition from Yahoo, software giant Microsoft Inc. and a host of smaller companies that have introduced rival products. Google has maintained its leadership, although Yahoo has narrowed the gap since unveiling its own search technology nearly a year ago. Microsoft is stepping up its threat with a multimedia advertising blitz to promote a new search engine on its MSN site.

Although Google's management steadfastly refuses to project future earnings, the company seems confident about its future. Google continued its hiring spree of the past two years, adding 353 more employees during the final three months of the year to boost its payroll to 3,021 workers as of Dec. 31. That's nearly five times more people than Google employed at the end of 2002.

Hoping to lure even more employees, Brin told analysts that the company is distributing big baskets of restricted stock to workers who develop promising technology. Google recently awarded a total of $12 million in stock to two different development teams.

For all of 2004, Google earned $399.1 million, or $1.46 per share, on revenue of $3.19 billion, In 2003, the company earned $105.6 million, or 41 cents per share, on revenue of $1.47 billion.