Google Q1 Profit, Revenue Drop amid U.S. Recession

Google reported revenues of $5.51 billion for the first quarter of 2009, which represents a 6 percent increase over first-quarter 2008 revenues—but also represents a 3 percent decline from fourth-quarter 2008 revenues of $5.70 billion.

"You look at the economic situation, we're still in uncharted territory," Google CEO Eric Schmidt said during an April 16 earnings call with financial analysts. "Google is absolutely feeling the impact."

This was the first sequential decline in the company's revenue since August 2004, when Google went public.

"Our priorities remain unchanged: basically, long-term growth," Schmidt continued. "Our mission is unchanged."

Google will continue to invest in both the core and growth areas of the company, including products such as Android and the newly overhauled AdWords.

In the quarter, Google-owned sites generated some $3.70 billion, or 67 percent of the company's total revenues. Partner sites generated $1.64 billion, or 30 percent of total revenues, through AdSense programs. International revenues totaled $2.88 billion, or 52 percent of Google's total revenues for the quarter.

Sites and network revenues both declined 3 percent from the fourth quarter of 2008. Aggregate paid clicks, however, increased 3 percent over the previous quarter.

As of March 31, the company had cash, cash equivalents and short-term marketable securities totaling $17.8 billion. With that amount of cash, Google could potentially seek acquisitions of small-but-growing startups such as Twitter.

"Google had a good quarter given the depth of the recession—while revenues were down quarter over quarter, they grew [6 percent] year over year, thanks to continued strong query growth," Schmidt said in a statement issued before the earnings call. "These results underline both the resilience of our business model and the ongoing potential of the Web as users and advertisers shift online."

Google maintains a comfortable search market lead over archrivals Yahoo and Microsoft. According to a new report by the research company ComScore, Google held 63.7 percent of core search market in March 2009, a 0.4 percent gain over February 2009; by contrast, Yahoo held 20.5 percent of the market, and Microsoft 8.3 percent.

Google's size and high profile have made it an IT industry bellwether of sorts. Its small rounds of layoffs over the preceding months, including 200 employees from its sales and marketing teams in March 2009, following the January 2009 layoffs of 100 recruiters, suggested that the company is preparing for a rough economic ride along with IBM and Microsoft.

Questions have also been raised about the financial viability of Google acquisitions such as YouTube, which despite selling ads against 9 percent of its content—up from 6 percent in 2008—is costing the company hundreds of millions of dollars to keep running.

Google nonetheless continues to invest, despite the global recession, in several areas outside of its revenue-generating solutions, including Google Ventures, a venture capital fund designed to invest in consumer Internet, software, clean tech, biotech, health care and other startup areas.