Buoyed by continued growth in search and by cost cuts, Google reported better-than-expected profits for the first quarter of 2009.
Google's net income increased eight percent annually to $1.42bn (£959m) for the quarter ended 31 March, the search company reported on Thursday. Revenue increased six percent to $5.51bn but, excluding commissions paid to advertisers (known as 'traffic acquisition costs'), revenue increased 10 percent to $4.07bn.
On average, analysts surveyed by Thomson Reuters had expected revenue, excluding commissions, of $4.01bn — slightly more than Google reported. However, the company cleared the earnings forecast, as it did in the fourth quarter, with earnings per share of $5.16, compared with the $4.93 expected, once various charges were factored out.
"Google had a good quarter, given the depth of the recession — while revenues were down quarter-over-quarter, they grew six percent year-over-year, thanks to continued strong query growth. These results underline both the resilience of our business model and the ongoing potential of the web, as users and advertisers shift online," chief executive Eric Schmidt said in a statement.
However, on a conference call to discuss the earnings results, Schmidt conceded that Google was feeling the effects of the economic downturn. "No company is recession-proof. Google is absolutely feeling the impact," Schmidt said.
Google makes money when people click on ads next to search results, so search volume growth is central to the company's business. So is the number of times people click, and that figure increased 17 percent from the year-earlier period, Google said.
"Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 17 percent over the first quarter of 2008 and increased approximately three percent over the fourth quarter of 2008," the company said.
Google has been restraining its experimentalism, cutting several projects that were not performing up to expectations. That included not just online services such as Dodgeball, but also potential revenue-generation engines such as print and radio ads.
In addition, it has laid off hundreds of employees through the process — nearly 200 in sales and marketing, 100 recruiters, 40 in a radio-ad project, and an undisclosed number of contractors.
While Google's revenue increased year-on-year, it decreased compared with the most recent quarter — the first time that has happened. It also, for the first time, had fewer employees, trimming head count from 20,222 in the fourth quarter of 2008 to 20,164 in the first quarter of 2009.
On a conference call to discuss the earnings results, Schmidt spoke in sober tones, while touting his company's overall performance during the economic downturn. "No company is recession-proof. Google is absolutely feeling the impact," Schmidt said.
For one thing, people are still searching, but they are doing more window-shopping and comparison while buying less, Schmidt said. Advertisers are bidding more on search keywords that produce a stronger return on investment, which means bids in the keyword auctions are generally lower.
Overall, however, the company's business model is healthy, according to Schmidt. "We think Google is now well-placed for the recovery," he said. "The shift to online gives us a real advantage."
He made no economic forecasts beyond cautioning that Google's second and third quarters are typically seasonally slower. Regarding the economy, he said: "We're still basically in uncharted territory."
Google also said that long-time executive Omid Kordestani, senior vice president of global sales and business development, is stepping down to become a senior adviser. He is being replaced by Nikesh Arora, currently president of international operations.
