Google shakes off effect of advertising slump

Google shook off the effects of the online advertising recession in the first three months of this year as its revenues jumped 23 per cent, ahead of official Wall Street estimates and its strongest growth in six quarters.

However, the results, released late on Thursday, failed to meet the more optimistic unofficial forecasts that had spread in recent days and the search company’s shares fell back by more than 4 per cent in after-market trading.

The stock market jitters were also prompted by a return to the company’s earlier aggressive hiring, with 800 workers added so far this year, and mixed signals about the resilience of pricing in the company’s search advertising business.

Google said it was adding engineers and marketing staff in a push to accelerate growth, and the pricing issues reflected trends that would benefit advertisers and therefore strengthen its business in the long run.

Its executives said a broad recovery in advertising, including from the travel and finance sectors, had underpinned the search company’s rebound from the first pronounced downturn in its history.

“The healthy momentum from [the fourth quarter] and the general economic recovery have continued,” said Patrick Pichette, chief financial officer. “Large advertisers have come back in force.”

In a change in practice after almost six years as a public company, Google said Eric Schmidt, chief executive, would no longer talk on its quarterly earnings. It denied that this reflected any deeper management change.

Google’s measures of performance in the latest period pointed to a solid rebound from the first quarter of last year. The growth in “paid clicks” – the number of times users click on advertisements, prompting a payment from advertisers to Google – accelerated to 15 per cent, while the average cost per click was 7 per cent higher.

But Google’s cost per click slipped 4 per cent compared with the final months of 2009, raising questions about pricing. This reflected shifting foreign exchange rates and a move by advertisers into lower-priced keywords, executives said – although they said this would also benefit the company in the long run.

Google reported net revenues of $5.06bn, excluding traffic acquisition costs. Net income climbed 33 per cent to $2.18bn, or $6.76 a share, on the pro-forma basis on which Wall Street judges the company.

The consensus forecast among analysts had been for net revenues of $4.93bn, with pro-forma earnings per share of $6.56.