Google Quells Analyst Fears on Strong Q1

The search vendor posts a 31 percent profit on sales of $5.19 billion, beating analysts' estimates.

Google swatted aside concerns about weakness in paid clicks by reporting a 31 percent profit for its first-quarter 2008 earnings April 17.

The Mountain View, Calif., search vendor reported net income of $1.31 billion on $4.12 per share, from $1 billion on $3.18 a share in the first quarter of 2007. Google tallied $5.19 billion in revenues, an increase of 42 percent from the $3.66 million it notched in the same quarter a year ago.

The first-quarter earnings busted financial analyst consensus estimates. Reuters Estimates expected revenues of $5.13 and net income of $4.53 per share, but Google reported profit of $4.84 a share, excluding one-time items and stock option expenses.

TAC (traffic acquisition costs), or payments made to sites such as AOL and MySpace to run its ads, was $1.49 billion, putting net sales at $3.7 billion.

The results included the operations of DoubleClick from the March 11 acquisition date through the end of the quarter, but were immaterial to Google's revenue tallies.

Paid clicks, which is where Google made the bulk of its $16.7 billion last year, increased 20 percent over the first quarter of 2007. This figure quelled analyst fears triggered after a ComScore report found that Google posted only a 2.7 percent gain in paid clicks from March 2007 to March 2008.

On the first-quarter conference call April 17, Citi Investment Research analyst Mark Mahaney asked whether or not Google expects its declining paid-click rate, which dropped from 30 percent growth in the fourth quarter, to stabilize.

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Google CEO Eric Schmidt on the call reiterated the company's position that the decrease of paid clicks is predicated on offering quality over quantity.

"We know that if we can improve aggregate quality, we know the value of a click, number of clicks and so forth will grow and will grow at whatever the technology will allow, so if you look, our absolute growth rate has been very, very significant," Schmidt said.

More broadly, Schmidt said Google doesn't see its position weakening in the face of any macroeconomic softness.

"We've looked at this really carefully, and we don't see an impact as of this time," Schmidt. Should the economy soften, he said Google would weather it well because its business is so focused on search, ads and applications.

Schmidt also declined to comment on the recent partnership with Yahoo, in which the Internet company is running Google ads alongside its own search results, ostensibly as a deterrent to Microsoft's bid to buy the company.

The Wall Street Journal reported earlier April 17 that the test has been going well and that the companies are considering a more serious relationship.

Meanwhile, the company, which said two quarters ago that it would start watching employee headcount, said it now employs 19,156 full-time employees, up from 16,805 full-time employees at the end of 2007.

Of the 2,351 employees added in the first quarter of 2008, 1,500 came from DoubleClick. Google laid off 10 percent of the DoubleClick work force in the United States last week, with more to follow overseas.

Schmidt also noted that Google has not settled on a new chief financial officer to replace the outgoing CFO George Reyes, though the company has met with a number of "interesting candidates," he said.