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Economy sluggish, but Google still bullish

"If people are doing more comparison shopping and looking for bargains, [the economic downturn] could be a positive."

Jonathan Rosenberg, senior vice president of Google product management

Google said it has seen no effect from a slowing economy on its advertising business, as it reported a 17 percent jump in profit and 51 percent growth in revenue in the fourth quarter.

The result represents a slowdown in Google's growth rate and fell shy of expectations. The company said it remained bullish about its business, regardless of the outlook for the overall economy.

"We have not seen any impact as of now," said Eric Schmidt, Google's chief executive, in an interview on Thursday afternoon after the financial report was announced. Schmidt said he had yet to see weakness in any advertising category.

It is not clear whether the comments from Google, the largest seller of online ads, will calm growing fears that a slowdown in the economy could take a bite out of online advertising.

While some analysts view Google as a bellwether for the online advertising sector, others say that its business relies disproportionately on small text ads that appear next to search results. Those ads tend to produce immediate results for advertisers because they drive traffic to their Web sites.

Analysts believe they are more impervious to a slowdown than banner ads, which are aimed at building brand awareness and are common on most sites.

"I don't think Google's ad model is insulated from a recession, but it is probably less vulnerable to cutbacks than other online ad models and definitely than traditional advertising," said Scott Kessler, an equity analyst with Standard & Poor's.

This week, Yahoo said it was too early to determine whether a slowdown in sectors like retail, housing, finance and travel would have an impact on its online advertising business.

During a conference call with investors, Google executives were upbeat about both the company's results and its prospects.

"We are very, very pleased with our year and also with the quarter that just ended," Schmidt said.

He said that the movement of ad dollars from traditional media to online media is a trend that is not going to reverse.

"We are optimistic about 2008," he said.

Google executives went as far to suggest that they might benefit in some ways from an economic downturn. Jonathan Rosenberg, senior vice president of product management, said worries about the economy could lead consumers to spend more time online searching for good deals.

"If people are doing more comparison shopping and looking for bargains, that could be a positive," he said.

The company's shares closed at US$564.30 during regular trading, up US$16.03 for the day, or nearly 3 percent. But its stock fell 6.5 percent after hours, to US$527.40.

The Internet search giant reported net income for the quarter of US$1.21 billion, or US$3.79 a share, compared with US$1.03 billion, or US$3.29 a share a year ago. Excluding items like stock based compensation, income was US$4.43 a share, slightly below the US$4.45 expected by Wall Street analysts.

Google said revenue in the last three months of the year rose to US$4.83 billion, from US$3.21 billion a year ago. Excluding commissions paid to advertising partners, a measure closely watched by Wall Street analysts, Google's revenue jumped to US$3.39 billion, from US$2.23 billion a year earlier. Analysts had expected revenues, without partner commissions, to be US$3.45 billion.
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