Google commits to long-term goals after Q3 revenue rise

Google increased its revenue and profit in the third quarter, as its top executives said the results were good while pledging to manage the business with a long-term outlook despite global economic challenges.

Google reported revenue of US$5.54 billion for the quarter, which ended Sept. 30, up 31 percent compared with last year's third quarter.

Deducting the commissions Google pays to its advertising partners, revenue came in at $4.04 billion, slightly below the $4.05 billion consensus expectation from analysts polled by Thomson Reuters.

Net income was $1.35 billion, or $4.24 per share, compared with $1.07 billion, or $3.38 per share, in 2007's third quarter.

On a pro forma basis, which includes one-time items, net income was $1.56 billion, or $4.92 per share, exceeding analysts' consensus expectation of $4.75 per share.

"Google had a good quarter. Traffic and revenue were both solid and we kept tight controls on costs," said Google CEO Eric Schmidt during a conference call.

As the global economic crisis squeezes marketing budgets, companies seek to maximize their advertising spending, and this benefits Google, because search advertising -- the company's core business -- is highly effective, he said. Plus, search ad campaigns are easy to monitor because there is so much concrete data to analyze and track, he added.

Economic woes also lead consumers to use search engines more, as they evaluate shopping options and compare prices, Schmidt said.

With so much economic uncertainty, Google will stick to its strategy of focusing on long-term growth and results, investing in its business as it sees fit and not making decisions for short-term gains, he said.

That means making investments to improve the quality of the search engine for consumers and the quality of ads for marketers, Schmidt said.

Although it is a much smaller portion of Google's business, the company's enterprise products, such as its enterprise search wares and hosted applications, also stand to benefit from the downturn, as IT and business managers seek lower-cost alternatives, he said.

Display advertising, which has traditionally been a minor business for the company, is also growing at Google, thanks in part to the integration of DoubleClick and to increased placement of this type of graphical and rich media ads in Google sites like YouTube, Schmidt said.

"We're very realistic about the [current] economic climate but we're optimistic about the future," Schmidt said.

Google's new CFO, Patrick Pichette, echoed that assessment. "Our core business continues to demonstrate strength despite a challenging economic environment. While we're focused on operational efficiency, we have and will continue to make crucial investments that are needed to drive value for our users, advertisers and partners," Pichette said.

Sergey Brin, Google co-founder and president of technology, said that for the second quarter in a row, the company has rolled out more than one hundred enhancements to its search technology, in areas like index size, performance, result quality and ad matching.

Google has also beefed up its software and hardware systems, so that services like its online calendar will perform better, Brin said.

There are now about 1 million [m] businesses using the Google Apps hosted collaboration and communication suite, he said.

Regarding the deal that calls for Yahoo to run Google search ads, Schmidt said that when the companies signed it back in June they were aware that it would be considered controversial and that competitors would oppose it. That's why Google and Yahoo decided to delay its implementation to give the U.S. government a chance to review it, he said. The government review is ongoing.

Asked about the negative reaction from some large advertiser industry groups, Schmidt said the opposition stems from a lack of understanding of how the auction process for search ads works.

The advertiser groups have expressed concern that the deal will drive ad prices up, but Schmidt argued that the auction model would prevent that from happening. "Auctions provide a clearing price for accurate value," he said.

Google ended the quarter with 20,123 full-time employees, up from 19,604 on June 30, 2008.

Google's own sites generated 67 percent of its revenue, while its partners produced 30 percent. Fifty-one percent of Google's revenue came from outside the U.S.

Paid clicks, which account for most of Google's revenue, increased about 18 percent. As of Sept. 30, Google had $14.4 billion in cash, cash equivalents and marketable securities.