Google shrugs off ad sales fear

Some analysts wonder how long Google can stave off a US slowdown

Google has reported market-beating results for the first three months of the year, easing worries of a slowdown in online advertising.

The owner of the most popular online search engine, said first-quarter profits rose to $1.31bn, up 30% from the same period a year ago.

Google boss Eric Schmidt said "innovation in search, ads, and apps" helped to boost earnings growth.

There have been fears that the firm was being hit by the slowing US economy.

Google said sales were up 42% to $5.19bn for the quarter ended 31 March.

Google is rapidly becoming Britain's biggest advertising business Rory Cellan-Jones, BBC technology correspondent Read Rory's blog

For the first time, the California-based firm earned more revenue abroad - 51% of total sales - compared to its home market. This was partly due to a slump in the weak dollar which increases the value of non-US earnings.

Its shares fell $5.50, or 1.2%, to $449.50 before its results were released, but they rebounded sharply after the closing bell which means that when New York trading begins on Friday, they will rise.

It's a good time to be a Google bull," said Colin Gillis, an analyst with Canaccord Adams. "The boys delivered."

Bright future?

Shares in Google, the darling of the technology sector in 2007, saw its shares reach a peak of $741.80 in November last year, making it the fifth biggest US company by market capitalisation.

Google boss on how the company makes money

But since then, its shares have been hammered on worries that it faced an advertising slump amid mounting evidence that the US is slipping into a recession.

The California-based company makes money when internet surfers click on the paid-for-links on the right hand side of the website which takes them through to the adverts.

Recent data from research firm comScore showed that fewer web searchers were viewing these, fanning fears that the company's best days were behind it.

Clicks on Google's sponsored links in the US slowed from a growth rate of 25% in the fourth quarter of 2007 to 1.8% in the first quarter of this year, according to comScore.

But its upbeat results suggest the reason for this reflects a deliberate reduction in the number of ads on each search results page to deliver to advertisers better matched visitors who are more likely to buy their products.

US SEARCH MARKET SHARE Google: 59.8% Yahoo: 21.3% Microsoft: 9.4% AOL: 4.8% Source: comScore March figures

Analysts say Google's strong performance could strengthen Microsoft's resolve to buy Yahoo even if it means raising its $44.6bn offer - a move that it has so far rejected.

Yahoo, keenly looking at ways to escape being bought by Microsoft, has even teamed up with rival Google in a two-week experiment which will see search-driven Google adverts alongside the search results of Yahoo's website.