Google regains its momentum

By Yi-Wyn Yen

With its strong first-quarter earnings report, Google on Thursday finally settled the score with comScore, which had sent Wall Street reaching for the antacid for the past two months.

Google’s paid clicks, which measures how often Internet users click on its text ads, were up 20% from a year ago. That was a far cry from the 1.8% growth rate for the first quarter that research firm comScore had reported.

Google CEO Eric Schmidt, wasted no time pointing out that fact at the beginning of the earnings conference call with analysts on Thursday. “It’s clear to us that we’re well-positioned in 2008 regardless of the business environment,” Schmidt said. “Paid click growth has been higher than speculated by third parties.”

For the past two months, Wall Street has hung its fears that Google (GOOG) might get hit hard during a recession on the comScore metrics. Instead, the search giant said it would manage just fine. It explained that it was intentionally cutting back on some ads so it can improve the overall quality and ultimately charge higher rates. Not everyone was sold on the idea when Google discussed its quality control initiative in late January.

But Google regained investors’ confidence after it reported profits that rose 30% to $1.31 billion, or $4.12 per share. Its total revenues of $5.2 billion, which includes ad sales it shares with partners, grew 42% from the same period a year ago. The stock shot up 17% in after-hours trading Thursday and rose above $500 mark for the first time since Feb. 22.

“It looks like comScore’s paid click metrics were highly misleading,” said Jeffrey Lindsay, an analyst with Sanford Bernstein.

Jonathan Rosenberg, Google’s top product management executive, explained that while sectors like travel, automotive, and finance are more exposed during a downturn, it was still seeing “healthy growth” in those areas. He said Internet users were still searching for keyword terms like “mortgage rates” in the U.K. where the housing market has been in a downturn for a longer period than the United States. “Every foreclosure becomes a home sale to somebody,” Rosenberg said during the call. “We are seeing absolute growths even in those areas.”

Some analysts say Google’s numbers are an indication that more ad dollars will shift online. “Google’s proven that online advertising holds up very well. It’s more accountable, measurable and cheaper,” Lindsay said. “They’ve demonstrated that they’re highly recession resistant.”

Google’s strength abroad also makes the company more immune to a slumping U.S. economy. Google’s international revenue of $2.65 billion represented 51% of the company’s total sales, making this the first quarter where the company earned more overseas.

Company executives said Google made more than 100 search-quality improvements in the first quarter. The bulk of changes were made internationally to improve local search results and to tailor Google’s homepages for the Asian market.

Schmidt ended the hour-long call by giving a shout-out to Google’s global sales teams and its top executive, Omid Kordestani. “I told Omid to get on an airplane and build an international operation,” Schmidt said. “Congratulations on making Google a truly global company.”