Google's profit rises 26%

Internet advertising giant beats analysts' profit expectations in spite of economic downturn.

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By Kenneth Musante, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Internet advertising giant Google reported a strong increase in sales and a bigger profit than expected despite the current economic slump.

The Mountain View, Calif.-based company reported revenue of $5.54 billion in the quarter ended Sept. 30, an increase of 31% from $4.23 billion a year ago.

Excluding commissions paid to advertising partners, Google posted sales of $4.04 billion, roughly in line with the $4.06 billion in sales analysts polled by Thomson Reuters expected on this basis.

Google reported net income for the third quarter of $1.35 billion, up 26% from $1.07 billion a year ago. Excluding certain charges, such as the cost of employee stock options, the company earned $4.92 a share, better than consensus estimates of $4.75 per share.

"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 Google chief executive Eric Schmidt in a statement.

Shares of Google (GOOG, Fortune 500) jumped more than 7% in after-hours trading.

But for the past three months, investors have been concerned about Google's performance, since its business relies heavily on advertising.

Google's shares have fallen more than 36% over that time period as investors worried that cash-strapped businesses simply might pull back on spending on search advertising.

However, the number of paid clicks registered by Google on its sites and through its AdSense advertising network grew 4% compared to the second quarter and rose 18% compared to the same period a year ago.

Tighter wallets may play to Google's strengths and drive up web traffic however, according to Schmidt.

"As marketing budgets are squeezed, targeted measurable ads are becoming more valuable to advertisers, and as consumer budgets are squeezed, people use the web for comparison shopping to hunt for bargains online and in stores," he said in a conference call to analysts.

"The number of search queries is actually going up," said Jeffrey Lindsay, analyst with Sanford C. Bernstein & Co.

When economic times are tough, people don't stop searching for things online, according to Lindsay; they just search for different things.

"Even if someone loses their job, they're going to look on the Internet for a new job," he said.

Investors have also been frustrated by the fact that a potential ad-sharing deal with rival Yahoo! (YHOO, Fortune 500) has been put on hold due to scrutiny from antitrust regulators.

The deal would give Google a gigantic new ad partner and help it widen its lead over Microsoft (MSFT, Fortune 500), which tried unsuccessfully to buy Yahoo earlier this year, in the lucrative online advertising market. But the government is concerned that a Google-Yahoo alliance would produce an online advertising monopoly. To top of page

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