Google Earnings, Sales Beat Analyst Forecasts

Google posted strong fourth-quarter earnings Thursday, beating Wall Street forecasts, as its Web search advertising business remained strong despite a bleak economy.

AP

The results released Thursday indicated the Mountain View, Calif.-based company was able to rein in its free-spending ways enough to offset a slowdown in the online ad market that generates most of Google's revenue. That contrasted with a missed forecast and 5,000 layoffs announced earlier in the day by rival Microsoft.

Even so, there were signs the recession is starting to bear down on Google.

The downturn forced Google to write down $1.1 billion of the combined $1.5 billion that it has invested in two troubled companies, AOL and Clearwire. And Google is allowing its 20,222 employees to swap their outstanding stock options for new ones that will carry a lower exercise price—which means the workers will have a better chance of making money from the options.

The move was driven by 47 percent drop in Google's stock price over the past year, leaving about 17,000 employees holding options that are "under water" and can't be cashed in now at a profit.

Although he hailed his company's strength in a decrepit economy, Google Chairman and CEO Eric Schmidt signaled the challenges are becoming more daunting by describing the fourth quarter as "the easy part" and calling the upcoming months as "uncharted territory."

"We don't know how long this period will last," Schmidt told analysts in a conference call. "We obviously hope it will be short. We're certainly prepared to get through this, no problem."

Excluding one-time items, Google said it earned $5.10 a share in the fourth quarter, against a profit of $4.43 a share in the same period the year before.

Google was expected to report a profit of $4.95 a share, according to a consensus estimate compiled by Thomson Reuters.

Sales climbed in the most recent quarter to $4.2 billion from $3.387 billion a year prior, excluding the commissions Google pays to sites that advertise with it. Analysts were predicting $4.117 billion in sales on average.

Google shares , which closed 1.13 percent higher at $306.50 on the Nasdaq Thursday, were up about 2 percent in extended trading.

Paid clicks—a measure of how often Google gets paid for advertisements alongside its Web search results—rose 18 percent from the year-ago quarter and 10 percent from the third quarter.

Investors have been concerned that Google's paid search business would face keyword pricing deflationary pressures due to the worsening economic environment, but the company said search query growth was strong with revenues up in most verticals.

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Google also said it is allowing its 20,222 employees to swap their outstanding stock options for new ones that will carry a lower exercise price—which means the workers will have a better chance of making money from the options. The move was driven by the sharp drop in Google's stock price over the past year.

"Our business is quite healthy, especially given the economic climate," Schmidt told analysts in a Thursday conference call.

- Reuters and AP contributed to this report.

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