Google Inc’s quarterly profit topped expectations, helped by cost controls, but chief executive Eric Schmidt said the economic environment remained tough with Internet users still searching but buying less.
Shares of the No. 1 US Internet search company initially rose 5 percent on the stronger-than-expected results, but then erased gains to trade flat after hours.
“We’re still basically in uncharted territory,” Schmidt said on a conference call. “Google is absolutely feeling the impact. Users are still searching but they’re buying less. Ultimately, what that really means is the ads are converting less.”
Compared with other Internet and media companies that depend on advertising revenue, Google has been extremely resilient to the economic downturn, though its revenue growth has slowed sharply from the heady 50 percent rates it used to enjoy.
Google reported first-quarter revenue of US$5.51 billion, up 6 percent from the first quarter last year, but down 3 percent from the fourth quarter — its first ever sequential decline. The figure was in line with average Wall Street expectations.
Martin Pyykkonen, senior analyst at Wunderlich Securities, said: “In one sense, revenue was certainly not robust, but considering the environment people are obviously taking that as somewhat of a comfort that it wasn’t any worse.”
“Tougher times but better discipline within the company on the cost management side [meant] that they were still able to come in and beat the bottom line pretty nicely by a few percentage points,” Pyykkonen said.
Net profit for the quarter that ended on March 31 was US$1.42 billion, or US$4.49 a share, up from US$1.31 billion, or US$4.12 a share, a year earlier.
Excluding special items, Google earned US$5.16 a share, ahead of the average Wall Street forecast of US$4.93, Reuters Estimates showed. The figure also beat the “whisper number” of US$5 per share that some analysts and investors were expecting.
Google executives said lower labor costs, as the company reset performance-based bonuses for the new year, kept expenses in line. And after several years in which Google expanded its workforce, the company’s headcount declined slightly in the first quarter to 20,164 employees worldwide.
Google announced three rounds of layoffs in the first quarter, although the 200 sales and marketing job cuts announced last month were not reflected in the latest headcount.
Separately, Google’s YouTube said it had signed a deal with Sony Corp to add the company’s films and TV shows to the video-sharing site and that it was talking with other big studios.
Schmidt said Google did not have any intention of changing its “conservative view towards cash management,” in a sign that a major acquisition may not be on the horizon.
However, Schmidt said Google would be happy to pursue an advertising partnership with companies like Twitter, the microblogging site that is often cited as a possible acquisition target for the Internet search giant.
Google also said it expected to continue to make significant capital expenditures, but did not provide financial forecasts, following its custom.