Google's Q3 Profit Jumps 26% amid Recession Fears

Google bests third-quarter income estimates, topping $1.35 billion at a time when financial analysts are concerned about weakness in the online ad market. Google's solid financial and paid click results indicate keyword advertising on search engines is alive and well. Industry experts will now look to Yahoo next week to see if display advertising has been impacted by the recession.

Google's third-quarter profit rose 26 percent to $1.35 billion from the year-ago period, which could alleviate some concerns over how the current recession would impact online advertising action.
Google's EPS for the third quarter of 2008 was $4.24. Excluding costs for employee stock compensation, Google said it would have made $4.92 per share, easily beating the $4.76 per share analysts expected.
The search engine giant saw sales hike 34 percent to $4.04 billion. Google's traffic acquisition costs, or proceeds given to Google partners, accounted for 28 percent of ad sales, or $1.50 billion.
Paid clicks, or clicks related to ads served on Google sites and the sites of its AdSense partners, increased approximately 18 percent over the third quarter of 2007.
Google's international revenues totaled $2.85 billion, or 51 percent of total revenues, in the third quarter of 2008.
Google, whose stock closed at $353.02, or roughly half of its value from this time last year, enjoyed a solid quarter amid the current recession.

The best commentary on Google's position in the market came during the third-quarter earnings call from CEO Eric Schmidt, who addressed the economic crisis:

""Google had a good quarter. Traffic and revenue were both solid, and we kept tight control on costs. Year-on-year, for example, search query traffic is growing in almost every vertical, and we believe that these results reflect the fact that as marketing budgets are squeezed, targeted, visual ads are becoming more valuable to advertisers.""

Schmidt also reiterated a common claim from the company: As budgets are squeezed by the economy, consumers are turning to the Web to do comparison shopping. The more users visit e-commerce sites, the greater the opportunity for them to happen across and perhaps even click on Google's search keyword ads.

Ad experts believe that search advertising, which Google dominates and which comprises 95 percent or more of Google's sales, will be resilient during a recession.

The chief, who one month ago downplayed the effect of the Wall Street credit crunch by saying that Google wasn't feeling it in California, now acknowledged that the financial woes are affecting the "wider economy." He did not use the word "recession" in his 4-minute monologue to open the call.
Schmidt also pointed to the weakened economy as an opportunity for Google, whose SAAS (software as a service) tools, which include corporate video, instant messaging, VOIP (voice over IP) and other applications, can help corporate employees cut travel times by collaborating online.
He also welcomed the appointment of David Rosenblatt, previously CEO for Google's DoubleClick subsidiary, as president of global display advertising. Schmidt said Google has an opportunity to provide more targeted display ads.
Moreover, YouTube is now running ads against 90 percent of all claims made by partners using YouTube's Content ID ads, he said. The consensus, according to Schmidt, is that Google is humming along.

Schmidt's comments are nothing if not positive for Google watchers and analysts, but it's not fair to hold the company up as a mirror for other struggling Internet companies, such as Yahoo or AOL. Google, after all, commands the lion's share of search ads.

Yahoo reports earnings next Tuesday after the bell, which could make for a somber occasion of its sub-$12 stock if expectations are any indication.