Google reports sterling quarter

Internet leader Google said yesterday it saw no impact from a weakening US economy as it posted a better-than-expected quarterly profit and waved off fears of an online advertising slump.

Google's hard-hit shares surged 18 per cent above $500 - a level last seen in February - as the company showed signs of better cost control and earned more revenue abroad than at home for the first time, partly because of the weak dollar.

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Chairman and chief executive Eric Schmidt told investors on a conference call: "It's clear to us that we're well positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by."

Google, one of the hottest technology stocks of 2007, had seen its shares erase last year's 50 per cent gain since the start of 2008 on investor concerns that the online ad industry was maturing and vulnerable to a US economic downturn.

Colin Gillis, an analyst with Canaccord Adams, said: "It's a good time to be a Google bull. The boys delivered."

But Cowen & Co analyst Jim Friedland said the surge in the shares was not based on dramatic improvements in Google's growth outlook, simply on relief that the economy was not dragging down the company's results as had been feared.

He said: "It was sort of an uneventful quarter other than taking a major concern - the economy - off the table."

First-quarter net income rose to $1.31bn, or $4.12 per diluted share, from $1bn, or $3.18 per share, a year earlier. Excluding one-time items and stock option expenses, profit was $4.84 per share, comfortably ahead of the average Wall Street forecast of $4.53 on Reuters Estimates.

Gross revenue rose 42 per cent to $5.19bn, just ahead of Wall Street targets. By contrast, Google's revenue grew at a 63 per cent rate in the same quarter a year ago.

International revenue accounted for 51 per cent of the total, surpassing US revenue for the first time and powering the company's results. Translating overseas sales into a weaker dollar helped boost Google revenue by nearly four per cent.

Google's performance may strengthen Yahoo! in its efforts to wring a higher takeover offer from would-be buyer Microsoft.

Peter Dunay, chief investment strategist at broker-dealer Meridian Equity Partners, said: "This signals that the online advertising market is still healthy, which should help Yahoo! get a better price for its company if it does decide to sell to Microsoft."

Google has been the subject of intense Wall Street debate over whether recent comScore data showing Google having trouble converting web searchers into ad viewers is an indication its best days of growth are behind it.

Paid clicks, a measure of how often users of its web-search click-on ads tied to search results, rose four per cent from the fourth quarter of 2007 and grew 20 per cent from a year ago.

Measured on clicks, Google's performance was better than feared but a far cry from a year ago, when the number of Google users clicking away grew 52 per cent on the year before.

Some of the slowing growth is self-inflicted. Since August, officials say Google has been axing low-performing ads in order to encourage clicks on more meaningful ads at higher rates.

Google's traffic acquisition costs - the cut of advertising revenue paid out to affiliated sites that run its ads - amounted to 29 per cent of ad revenue in the first quarter. A year ago, the proportion was 31 per cent.

Google closed a $3.4bn acquisition of ad technology company DoubleClick in March. The move strengthened its position against Yahoo! and Microsoft in the market for online brand advertising preferred by corporate marketers.

Co-founder Sergey Brin said in a phone interview that the company aimed this quarter to link up DoubleClick's system for buying and selling online display ads with Google's own AdSense system for buying and selling other types of online ads.

Jonathan Rosenberg, Google's senior vice president for product management, said: "We really feel we're in a position to become the world's largest display ads provider."

Google shares shot up to $529.38 in extended trading from its close of $449.54 on the Nasdaq earlier on Thursday.

Helping that rebound, Schmidt said Google was confident its targeted advertising could withstand most economic scenarios.

Schmidt told analysts and investors on the quarterly conference call: "On the macro side we've looked at this really carefully and we do not see an impact as of this time."

He added: "Our conclusion is that we're well positioned, should economics change, to continue to do well because our model is so targeted and targeted advertising does well in pretty much most scenarios, we think."