April 16, 2009, 5:27 PM — Google grew its profit and revenue in the first quarter, ended March 31, despite a tough economic environment that is affecting online advertising spending, the company's main revenue engine.
Google reported revenue of US$5.51 billion in 2009's first quarter, up 6 percent compared to the $5.2 billion in revenue it generated in the first quarter of 2008, the company said Thursday.
Subtracting commissions and fees Google pays to advertising and distribution partners, revenue came in at $4.07 billion, slightly missing the consensus forecast of $4.08 billion from analysts polled by Thomson Reuters.
Google had net income of $1.42 billion, or $4.49 per share, compared with net income of $1.31 billion, or $4.12 per share, in 2008's first quarter.
On a pro-forma basis, which excludes certain one-time items, net income was $1.64 billion, or $5.16 per share, beating the analysts' expectation of $4.93 per share, and exceeding pro-forma net income of 2008's first quarter, which was $1.54 billion, or $4.84 per share.
"Even when the economy and advertising are in the state they're in, Google is still capable of impressing," said Gartner analyst Andrew Frank in an interview.
During a conference call to discuss the results, Google CEO Eric Schmidt said he was satisfied with the quarterly financial performance, considering the global economic crisis, and attributed the rise in revenue to growth in search queries.
"Despite the tough economic climate, we think Google had a good quarter," Schmidt said, adding that he considers the economy to be "still basically in unchartered territory."
People are still using Google's search engines, but they're buying fewer and less-expensive products from advertisers, which means the sales conversion rates for ads are dropping, he said. As a consequence, marketers are spending less in order to balance their advertising return on investment (ROI).
"No company is recession-proof, and Google is absolutely feeling the impact," Schmidt said, warning that the company has now entered its historically weaker season: the second and third quarters.
However, he expressed confidence in what he considers the higher accountability and effectiveness of Google's search advertising model, particularly its auction-based approach to setting pay-per-click fees for ads. Google also benefits from the continued increase in Internet usage and the continued shift of ad spending to the online medium, he said.
"Google is now well-placed for the recovery when it occurs," Schmidt said.
"The first quarter demonstrated the resilience of our business model in a very severe global recession. We're going to continue to invest for the long term as we should and as we will," he added.
Gartner's Frank was struck by the focus that Schmidt and the other executives on the conference call kept on Google's core search advertising business, unlike other times when they devote more time to emerging business lines, like YouTube and enterprise IT software.
"They were very much focused on their core business without too much fluff around any of the other stuff," Frank said. "It reminded me of the phrase: 'under stress, we regress.'"
Google also announced that Omid Kordestani, senior vice president of global sales and business development and the architect of Google's extremely successful business model, is leaving his post to become senior adviser for the Office of the CEO and Founders. Nikesh Arora, president of international operations, will replace Kordestani.
Schmidt praised Kordestani, describing as brilliant the way in which "he built the business of Google."
"As the business founder of Google, no one is better placed to advise us on issues like future revenue growth for Google," Schmidt said.
The number of clicks on ads served on Google sites and its partner sites increased 17 percent compared with 2008's first quarter.
After calling it "a poor man's e-mail" recently, Schmidt had words of praise for Twitter, the micro-blogging phenomenon that some pundits believe could be an acquisition target for a major Internet player like Google or Microsoft.
"Twitter proves that innovation is alive and well in Silicon Valley," Schmidt said.
Twitter offers a very useful service by letting people and organizations provide real-time updates, he said. "The question is how can you make money at that," he said, adding that advertising is an obvious way.
Google would be very happy to help Twitter and the other companies like it to monetize their services via advertising, he said.
Google ended the quarter with 20,164 full-time employees, slightly down from the 20,222 employed as of Dec. 31, 2008.
