• by Laurie Sullivan  @lauriesullivan, April 16, 2009

Google's revenue rose 6% to $5.51 billion for the quarter ending March 31 versus the same quarter a year ago, but fell 3% sequentially, the company announced during its quarterly earnings report Thursday.

Net income rose 9% to $1.4 billion, or $4.49 a share -- up from $1.3 billion, or $4.12 a share, in the same period a year ago.

Despite tough economic times, Google had a pretty good quarter, Google CEO Eric Schmidt told investors and reporters in a conference call. "We are still basically in uncharted territory," he said. "The current economic environment ... remains tough. No company is recession-proof. Google is absolutely feeling the impact."

Schmidt said users are still searching, but buying less. Ads are converting less. More people are window shopping and purchasing lower-priced goods. Advertisers are still spending, but lowering bids to manage return on investments.

The shift from offline to online continues, but Schmidt reminded analysts that Google is heading into the weaker second and third quarters.

Results were better than many analysts had expected, considering the recession and the general downturn in ad spending. Paid clicks related to ads served on Google sites and the sites of AdSense partners rose 3% sequentially, at about 17% compared with the year-ago quarter.

This news confirms reports by analysts at Sanford Bernstein, who spotted solid growth in paid-click traffic. A report published earlier this week suggested paid click growth of 22% and revenue-per-click declines of 9% because of the economic conditions, translating to gross search revenue growth of 10%.

Although Google shuttered Google Video, Google Notebook, Google Catalog, Dodgeball and Mashup Editor, the company continues to add advertising on its sites. Google added text ads in Google Image Search, Google AdWords on Google News, Google Display ads on Google Finance, and AdSense on YouTube, among others.

The search engine said it will continue to invest in tools to make paid search easier for advertisers. Advertisers are seeing improvements, according to Jonathan Rosenberg, SVP product management at Google. For example, those who adopted Google's Conversion Optimizer, which automates bids, have seen cost-per-actions drop 14%, while conversions rose 21%. The search-based keyword tool, which automates keyword selection, delivers higher conversion rates and lower CPCs, he said.

"They had a good financial performance due to cost-cutting and one-time international currency hedging that worked in their favor," said Roger Barnette, president at SearchIgnite, New York. "Operationally, it was very much in line with expectations, based on our client-base numbers domestically. They didn't discuss intra-quarter trends, but what we saw was growth throughout the quarter."

Google eliminated roughly 300 positions in sales, marketing and recruiting, but brought on new hires in other business units. Worldwide, the company had 20,164 employees as of March 31, down from 20,222 full-time employees as of Dec. 31, 2008.

"Google reported earnings that clearly display efforts in cost-cutting have paid off," said Mark Simon, VP industry relations at Didit. "By reducing overhead through employees and unproven Google initiatives, they have stayed ahead of the analysts' forecasts, albeit conservative ones at that."

Simon said he will keep an eye on the way Google maintains industry dominance through the second and third quarters. "They still need to work through a tenuous relationship with the news providers that have recently been greatly publicized," he said. "The bottom line is, will the advertisers be able to continue to support the marketplace as their ROI margins slim down? Only time will tell, but I just can't bet against the big G. They are like a cat that falls off a building and always lands on their feet."