Google grows profit and revenue in Q1

Google posted solid growth in its revenue and profit during 2008's first quarter and exceeded Wall Street expectations in both categories amid widespread concern that the search engine giant's results would be weak.

Google generated revenue of $5.19 billion for the quarter that ended March 31, up 42 percent compared with 2007's first quarter, Google said Thursday.

Excluding the advertising commissions it pays to Web site publishers that carry its ads, Google posted revenue of $3.7 billion, beating the $3.608 billion consensus estimate of financial analysts polled by Thomson Financial.

The company had net income of $1.31 billion, or $4.12 per share, compared with $1 billion, or $3.18 per share, in 2007's first quarter.

On a pro-forma basis, excluding certain items, net income was $1.54 billion, or $4.84 per share, topping analysts' expectation of $4.52 per share.

Google's ability to continue generating solid revenue and profits from its search advertising business came under scrutiny in recent months, as several independent studies suggested that people were clicking less than expected on its pay-per-click ads and that rival Yahoo is stealing market share. However, the first quarter results at first glance don't seem to indicate any major breakdown in Google's revenue-and-profit making machine.

Google reported paid-click growth of 20 percent year-on-year during a quarter when the company tightened its ad-targeting technology to serve fewer but more relevant ads, executives said during a conference call.

"Paid-click growth was much higher than has been speculated by third parties. In search, we continue to invest in quality, particularly internationally, and quality improvements lead to increased traffic and share," said Eric Schmidt, Google's chairman and CEO.

Reports from comScore in January, February, and March indicated that Google's paid-click growth rate had slowed down significantly in the U.S., leading to concerns that the company would report disappointing results.

But Schmidt repeated explanations given recently by other Google executives, that the company has been purposefully serving fewer but more targeted ads to its users, and that these efforts increase the value of those clicks to advertisers.

"We're showing fewer but much better ads in each cycle. That's a key part of the Google success story," Schmidt said. "We're putting more and more flexibility and control in the hands of advertisers so they can decide exactly where the ads should go and measure it in a way that … they couldn't before."

Also contributing to Google's success is the company's three-pronged strategy of ads, applications, and search, which "is beginning to show transformative effects" because it fosters increased Web use and propels ad revenue, he said. Schmidt added that Google hasn't been significantly affected by the recent economic downturn in the U.S.

Sergey Brin, co-founder and technology president, said Google rolled out about 100 material improvements to its core search engine during the first quarter.