The Googlization of Everything

NYTimes.com:

Google’s Net (and Stock) Rise Sharply By MIGUEL HELFT

SAN FRANCISCO — For months, Google has promised investors that the company’s online advertising system would do relatively well in an economic downturn. On Thursday, it showed evidence that it may be able to deliver on that promise.

Google said that its growth rate continued to slow in the third quarter. But the company fared better than Wall Street expected as it reported a solid 26 percent jump in net income to $1.35 billion, or $4.24 a share, from $1.07 billion in the third quarter of 2007. The company’s results were bolstered by strong gains in online advertising and efforts by Google to slow hiring and rein in costs.

Google’s shares, which rose to $353.02, or 4 percent, in regular trading on Thursday, jumped another 10 percent after the company reported its financial results. However, they remain down sharply from their high of just over $740 last November.

Google’s chief executive, Eric E. Schmidt, said the results reflected marketers’ acceptance of a system that is better and more measurable than other forms of advertising. He said that while the economic environment was unpredictable, Google was poised to continue doing relatively well.

“We are very realistic about the macroeconomic climate, but we are optimistic about Google’s future,” Mr. Schmidt said during a conference call with analysts.

While Google is the largest seller of online ads, its relatively strong results are not indicative of the overall health of the Internet advertising business. Google relies primarily on search ads, the fastest-growing segment of the market. Since marketers use such ads to lure people to their Web sites, analysts say they believe they are among the last thing advertisers would cut during a recession.

“This is the first quarter when the wheels are coming off the wagon on the economy and they’ve been able to have a decent quarter,” said Youssef H. Squali, an analyst with Jefferies & Company. “Google’s business model has proven to be better than that of your typical Internet company because of its focus on performance.”

Google said revenue for the third quarter, which ended Sept. 30, grew 31 percent, to $5.54 billion, up from $4.23 billion a year earlier. The growth rate is a further indication that Google’s business is maturing. The company’s revenue grew 56 percent in 2007 and 73 percent in 2006.

Google’s net revenue, which excludes commissions paid to advertising partners, rose to $4.04 billion, roughly in line with the $4.05 billion that analysts expected. The company beat Wall Street’s profit expectations. Excluding the cost of stock options and other items, Google’s income was $4.92 a share, higher than the $4.79 a share forecast by analysts.

The company also said that the number of times users clicked on its ads grew 18 percent from a year earlier, roughly the same rate as in the previous quarter.

In the conference call, Hal Varian, Google’s chief economist, said advertisers appeared to be willing to keep buying search ads because they were effective.

“Our experience is that advertisers are willing to take all the clicks they can get,” said Mr. Varian. “Even in tough times that continues to be true. No one wants to turn away a customer.”

Ahead of Google’s report, several companies that sell services and tools to search marketers said that they had seen little evidence of a slowdown. “We are not seeing any weakness in our business,” said Christopher Lien, the chief executive of Marin Software, whose technology helps marketers manage search advertising campaigns. For example, Mr. Lien said, a large apparel retailer had recently promised to double the amount of money it would spend on search ads.

Still, many analysts cut their revenue and profit expectations for Google in recent weeks, amid signs that the slowing economy would affect advertising budgets both online and offline. And some analysts say they believe that Google’s strong results in the third quarter are not necessarily indicative of future performance. ...