technology

Google Shrugs Off Ad Spending Slowdown, Displays Profit

Google Video search windowEditor's Note: Please see the clarification to this article.

Any suspected slowdown in ad spending has not affected Google. Third-quarter ad sales came in ahead of consensus. Google shook off the slowing economy to boost third-quarter profit by about 26% to $1.35 billion, or $4.24 a share.

The Mountain View, Calif.-based search giant reported Thursday that revenue grew 31% to $5.5 billion, compared with the same quarter last year. Google's income would have been $1.56 billion, or $4.92 a share, excluding certain items.

Google.com grew 34% to 2.7 billion, driven by steady traffic growth. AdSense rose 15% to 1.7 billion. Global aggregate paid clicks climbed 18%, compared with the prior year's quarter.

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Analysts expected, on average, earnings of $4.77 per share on $4.05 billion in revenue.

In the third quarter, Google continued to increase its market share of search advertising dollars, now controlling 72.2% of the advertiser budget--up from 70.8% in the second quarter, according to a report released earlier this week by SearchIgnite, a search management company, and investment bank RBC Capital Markets.

During the quarter, Google made improvements across the board. Every four hours, the search engine now indexes as much information as is housed in the U.S. Library of Congress. Google launched more than 100 search improvements, and streamlined the Google toolbar. The company now has Google Suggest deployed in 10 countries, books and videos are being blended more often into the first page of search results, and Chrome, Google's new Web browser, now supports Web services in an open source platform.

Google also made about two dozen improvements to the content network--such as AdSense for Games--and launched a click-to-buy feature on YouTube for videos, CDs and other relevant merchandise.

Advertising remains the vast majority of Google's revenue, so the company continues to improve its ad systems. "We've updated the quality-based bidding system, which helps weed out underperforming ads and gives us the opportunity to run ads that generate better return on investments for advertisers," said Sergey Brin, Google co-founder and president of technology, during the quarterly investors call. "We also made changes to how we rate landing pages to make sure when users click on ads they're taken to useful sites."

In fact, Brin said, Google considers ads significant contributors to high-quality search because they "increase the overall search-quality experience" for consumers.

A study released this week by JupiterResearch--commissioned by Marin Software, San Francisco--suggests that paid search advertising will become a $26.8 billion business by 2009. The data reveals that 92% of large search marketers would increase their pay-per-click (PPC) spend an average of 22% if technology and management impediments were resolved.

Google executives declined to give company guidance, but said a Google tool that can take the pulse of consumer search patterns reveals that in the last three weeks consumers have been obsessed with searching on terms like money markets, mutual fund, buying gold, 401K, and banking crisis.

Indeed, the poor economy could continue to work in Google's favor. As pursestrings tighten, people will search more for information and bargains before they shop in stores.

"While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display," said CEO Eric Schmidt.

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