Google’s Growth Slows in First Quarter Amid Recession: Los Angeles Times, April 2009

The nation’s economic ills have infected even the Internet moneymaking juggernaut Google Inc., which Thursday reported slowing revenue growth and an increase in profit aided by sharp cost-cutting.

“No company is immune,” Chief Executive Eric Schmidt said in announcing the company’s first-ever quarter-to-quarter drop in sales. In an interview, he added, “There are people who somehow thought that we were.”

Consumers are spending less, so advertisers don’t need to bid as much money to place ads on Google’s search page, Schmidt said. “Advertisers and users are behaving rationally,” he said.

The Mountain View, Calif., company that runs the Internet’s most dominant search engine still managed to post a bigger profit than Wall Street expected.

Google’s first-quarter revenue was $5.51 billion, down 3% from the fourth quarter but an increase of 6% over the first quarter of 2008.

Net income was $1.42 billion, or $4.49 a share, for the three months ended March 31, up 9% from $1.31 billion, or $4.12, in the same quarter last year. Excluding special items, Google earned $5.16 a share, well ahead of the average Wall Street forecast of $4.93, according to Reuters Estimates.

“We think we did pretty well amidst a global recession,” Schmidt said.

Analyst Jeffrey Lindsay of Sanford Bernstein agreed.

“We thought it was a very good performance relative to the economic conditions,” he said. “Bear in mind that total ad spending is down 6%. Turning in growth of 6% shows that the model is resilient and recession resistant.”

Lindsay praised Google for keeping expenses down. Employee head count dropped by only about 200 in a workforce of 20,000, Schmidt said during a conference call with analysts, but Lindsay said the employment figure had almost always risen in the past.

In recent months, Google has pulled the plug on a number of initiatives, including radio and print advertising sales programs, the virtual world Lively, the Twitter-like messaging service Jaiku and the mobile friend-finder Dodgeball.

“The killing of unproductive projects is having a big effect,” Lindsay said.

Challenges lie ahead, however. Google still has not managed to broaden its revenue stream beyond Web search. ComScore Inc. said this week that Google accounted for 63.7% of all searches in March, up slightly from February’s 63.4%, giving it a commanding lead over second-place Yahoo Inc. with 20.5%. Research firm EMarketer Inc. said Google’s projected 2009 advertising revenue of $8.5 billion would blow away Yahoo’s $3.4 billion.

With such domination, Google can’t steal much more market share, EMarketer senior analyst David Hallerman said. Top of the list for boosting non-search revenue is getting advertisers onto YouTube, Google’s popular and expensive-to-operate video service, which the company tried to tackle Thursday by announcing deals with big studios to put TV shows and movies on the site.

Schmidt said he was optimistic that last year’s $3.2-billion acquisition of online ad service DoubleClick Inc. would bring more display ads, and that YouTube’s increasing reliance on professional content would also help.

“Nothing is insurmountable at Google,” he said. “It’s just a matter of what is the order in which we could attack these problems.”

Its shares rose $9.24 to close at $388.74, then fell 50 cents in after-hours trading.

Google also said Omid Kordestani, a senior vice president who built and ran its global sales and partnership operations, would step aside and become a senior advisor to Schmidt and company founders Larry Page and Sergey Brin. Nikesh Arora, Google’s president of international operations, will succeed him.

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