Google’s profits declined for the first time in 17 consecutive quarters but still managed to beat analysts’ forecasts in results just released, sending its shares up 2.6% in afterhours trading.
Google made $382 million, or $1.21 per share, in the three months to December. Google's profit had climbed by at least 17% in its previous 17 quarters as a public company.
Fourth quarter net income dropped 68% from the previous year on one-off charges of $US1.09 billion, accounting for the decline in value of its $1.5 billion investments in AOL and Clearwater, and the global recession bit into its online advertising growth.
Google also announced it will be starting a stock option exchange program from the end of January through early March in order to retain employees.
According to chief executive Eric Schmidt, many of the current options would cost more to exercise than they are worth, so the new plan allows employees to exchange old options for new, and the company will count them as stock-based compensation in the first quarter, costing Google another estimated $460 million.
The one-off charges blemished an otherwise decent quarter, as excluding the charges Google made $5.10 per share - besting the average analyst estimate of $4.95 per share.
The result suggests Google was successful in attempting to restrain its previously free-spending ways, offsetting the decline in paid search advertising that generates 68% of Google’s income.
The company has scaled back non-profitable projects such as Google Video, Google Notebook and Jaiku, and significantly cut back on new hires - adding just 99 workers in the fourth quarter, down from nearly 900 at the same time in 2007, and recently laid off 100 recruiters.
The company also slashed capital projects by 82% from 2007, spending just $368 million.
Revenue climbed 18% to $5.7 billion, marking the first time Google's revenue growth has fallen below 30% from the previous year.
Mr Schmidt hailed the company’s performance in an ailing economy, saying “Google performed well in the fourth quarter, despite an increasingly difficult economic environment. Search query growth was strong, revenues were up in most verticals, and we successfully contained costs,”
However, Mr Schmidt signalled 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," Mr Schmidt told analysts in a conference call. "We obviously hope it will be short. We're certainly prepared to get through this, no problem."
"Our business is quite healthy, especially given the economic climate," Mr Schmidt said.
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