Google sales surge 17%, trouncing forecasts

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- Google reported quarterly sales Thursday that returned to double-digit growth for the first time in a year on the back of a rebounding advertising market.

"We're back in business, full-blast," said Google Chief Executive Eric Schmidt on a conference call with investors. "Given that the global economy is still in the early days of recovery, this was an extraordinary end to the year."

The Mountain View, Calif.-based search giant's revenue rose 17% to $6.7 billion. Excluding advertising sales that Google shares with partners, a figure also known as traffic acquisition costs, the company reported sales of $4.95 billion, which beat analysts' forecast of $4.92 billion.

Google's sales had not reached double-digit growth since the fourth quarter of 2008. During the first nine months of 2009, sales slowed to a crawl, increasing just 5% during that period. Prior to the first quarter of 2009, Google's sales had grown at least 10% in every quarter since its 2004 IPO.

Sales got a boost as the struggling advertising market made a strong comeback. Advertisers paid 5% more per click on ads served on Google's Web site in the fourth quarter than they did a year ago. That figure was up 2% over the third quarter of 2009.

In a sign that consumers are increasingly willing to spend, more Internet users clicked on ads. The number of paid clicks on ads served on Google's Web sites rose 13% from last year and 9% from the third quarter of 2009.

Google said that companies, especially retailers, increased their adoption of online advertising last quarter as more consumers looked to the Web to buy goods. Both paid clicks and click traffic were down significantly in the first nine months of 2009, which dragged down Google's revenues during that time.

Google's net income totaled $2 billion, or $6.13 per share, in the fourth quarter. That's up from $382 million from the same period last year, which included several hefty one-time charges.

Excluding one-time charges in the fourth quarter, Google earned $2.2 billion, or $6.79 per share, up 35% from a year earlier. Analysts polled by Thomson Reuters, who typically exclude one-time charges from their forecasts, expected earnings of $6.48 per share.

Results trumped Wall Street's expectations, but shares of Google (GOOG, Fortune 500) still fell 5% after hours.

A growing Google

Though 97% of Google's revenue and profit in the quarter came from online advertising, the company is trying to diversify the source of its cash flow. Earlier in the month, Google unveiled its Nexus One phone, its first foray into the hardware market.

Google's Schmidt said Thursday that the point of the Nexus One is to give consumers "a new way to buy a phone." But analysts say the Nexus One will also help fuel clicks on mobile Web ads, a fast-growing business for Google.

Google's mobile business has been a "pretty clear success at this point," Schmidt said. He called Google's investments in mobile "clearly the right ones," predicting that in the coming years, most consumers will be accessing the Internet on phones, not on PCs.

He also reiterated that the company plans to aggressively acquire other companies and hire more staff, especially in engineering and sales. Worldwide, Google grew its staff to 19,835 full-time employees at the end of 2009, up from 19,665 at the end of September.

Google in China

After announcing last week that it may leave China and shut down its strictly monitored site there, Google.cn, Google said Thursday that its future in the country remains uncertain.

"We want to stay in China, and we remain committed to being there," said Schmidt. "We just want to do it on somewhat different terms that we have had there."

For several years, Google has operated a Web site in China that provides censored content to users. After a targeted cyber attack on its network infrastructure was revealed last week, Google announced it had a change of heart about its operations in China, and would no longer operate a restricted Web site in the country.

On Thursday, Google's Schmidt said the company is continuing to work with the Chinese government to broker a deal so that Google can keep its operations open in the country. To top of page

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