Google Profit Jumps 30% Despite Slowing Economy

What recession? Google yesterday reported a 30 percent increase in first-quarter profit, easing investor concerns that the technology company's ascent would be slowed by a weakened U.S. economy.

The Mountain View, Calif., company attributed the performance, which exceeded analysts' expectations, to growth overseas and improvements in its formula for delivering ads alongside search results and on third-party sites.

"It's clear we are well positioned for 2008 and beyond, regardless of the business environment we are surrounded by," chief executive Eric E. Schmidt told analysts during a conference call.

For the three months ended March 31, Google had a profit of $1.31 billion ($4.12 a share), compared with $1 billion ($3.18) in the first quarter of 2007. Analysts surveyed by Bloomberg had expected per-share earnings of $3.96.

The company's results surprised some analysts who had speculated that the economic slowdown would weaken Google because its advertising business is so enmeshed with the economy.

Their fears were based in part on results from ComScore, a Reston firm that tracks Internet use, showing that the growth in the number of "paid clicks" people were making on Google's search ads was rapidly slowing.

ComScore said that in the first quarter, Google's paid clicks rose only 2 percent year-over-year, a sharp drop from the 25 percent growth in the fourth quarter of 2007 and 48 percent in the third quarter of 2007.

Since Google typically gets paid by the click, any stall in those clicks would be significant. This "marks a significant deceleration," Bear Stearns said in a report last week.

But in announcing its results, Google said its paid clicks, which include search ads and the ads it delivers to third-party sites, had increased 20 percent from the first quarter of 2007. Revenue rose 42 percent, to $5.19 billion.

Company officials said search advertising, so far, has withstood the economic downturn.

"Targeted advertising does well in pretty much most scenarios, we think," Schmidt said. "We do not see an impact as of this time."

Google engineers pride themselves on the software that delivers the most relevant ads -- and therefore, the most profitable ones -- for each query. Google co-founder Sergey Brin said the company made 100 improvements in its search routines during the quarter.