Google Sees 19 Percent Growth Despite Downturn

Google CEO Eric Schmidt says Google is focused on innovation with the Google Chrome OS and the core search engine; these are two big weapons the search engine giant is wielding against Microsoft’s Windows operating system and Bing search engine.

Rebounding from a lackluster first quarter, on July 16 Google reported a second-quarter profit of $1.48 billion on $4.66 per share, a 19 percent growth over $1.25 billion in profit on $3.92 per share from the second quarter of 2008.

The search engine giant, which is fending off renewed competition from Microsoft’s Bing search engine, reported sales of $5.52 billion for the second quarter, an increase of 3 percent from the year-ago quarter. Earnings, excluding special items, were $5.36 a share. Thomson Reuters analysts had expected Google to notch earnings excluding special items of $5.09 a share and $4.06 billion in net revenue.

The second-quarter profit and revenue growth marks a small turnaround for the company, which reported $5.51 billion in sales for the first quarter, a 3 percent decline from fourth-quarter 2008 revenues of $5.70 billion.

Google CEO Eric Schmidt said on a conference call that Google’s business appears to have stabilised and the company had a good quarter despite the weak economic environment.

Consumers, he claimed, are using search to find deals on e-commerce goods. Schmidt added that Google’s business model and steps to manage head count put the company in “a good position for the economic upturn, when it occurs.”

He also promised the company would not stop innovating during the downturn, pointing to the recent announcement of Chrome OS for netbooks as an attempt to “rethink what an operating system should be,” a clear shot at Microsoft’s Windows operating system. “We need faster operating systems in the same way we need faster browsers. People are now doing everything on the Web.”

That wasn’t Schmidt’s only allusion to Microsoft. Schmidt also pointed to search as an important area for innovation, a hint that Google is aware of Bing’s presence in the minds of many analysts and pundits waiting to see if users make the leap. So far, most have not, with Bing gaining Microsoft only .04 percentage points in search in its first month of existence.

“Search is still an unsolved problem,” Schmidt said. “Even though Google is working very, very hard … to make search more social, more personal, more intelligent … users are now coming to us with increasingly more complex questions and queries. We’re getting much better at finding the exact information people are looking for.”

He pointed to Google Squared, the company’s search spreadsheet feature, which sorts data facts from across the Web, as one of the new search options Google employs to organize information online.

For advertising, Schmidt reaffirmed that Google is experimenting with new forms of local, product, mobile and video search. While Google does not break out sales from individual ad units, he said display ads, in particular DoubleClick and YouTube, performed well in the quarter.

In other second-quarter figures, Google’s TAC (traffic acquisition costs), or the money Google paid to its AdSense partners to carry its online advertising, totaled $1.45 billion, compared with TAC of $1.47 billion in the year-ago quarter.

Paid clicks, which include clicks on ads served on Google sites and those of its AdSense partners, grew 15 percent from second-quarter 2008 but decreased 2 percent from the first quarter this year. Moreover, the average cost-per-click decreased 13 percent over the second quarter of 2008, but increased 5 percent over the first quarter of 2009.

Consistent with Google’s head-count trimming from the first quarter, the company reported 19,786 full-time employees, down from 20,164 full-timers in the first quarter. Google also said it has $19.3 billion in cash.