Google's 1Q profit climbs 30 percent

April 17, 2008 7:12:59 PM PDT
Silicon Valley is breathing a deep sigh of economic relief on Thursday because Google's doing great. It's a sign that the economy, at least the dot com sector, may not be in such bad shape after all. Google's revenue was $100 million dollars higher than predicted and profits are up 30 percent. Although it was announced after the stock markets closed, the news was huge on Wall Street. Google stock rose an astounding $77dollars in after hours trading, closing at $527 dollars a share.

A few annalists predicted the overseas market would help Google report positive earnings and they were right. They were on the money. Those markets help Google remain somewhat insulated from the problems of the U.S. economy.

Google's earnings report seems to indicate the internet advertising market is still strong.

One reason is, for the first time ever the majority or 51 percent of Google's sales came from international markets.

LeeAnn Prescott is a research director with Efficient Frontier, which places ads on search engines for large companies.

"We have seen extremely strong growth from our clients in the UK, in Europe and we are now placing ads in China and we have partnerships in Japan and Australia," said Prescott.

Google makes its money when users click on advertising links.

Google came up with a way to make sure advertisers were getting more bang for their buck by targeting, a more efficient way to send users to sites they may be interested in.

The cost per click went up 11 percent.

"So that means advertisers are willing to pay more for that quality traffic. So that's what drives the value for Google," said Prescott.

Thursday Google's chief executive Eric Schmidt issued a statement saying, "It's clear we are well positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by."

Sandeep Aggarwal is with Collins Stewart, an investment bank. He disagrees and rates Google as hold.

"We all like Google but in the short term they are exposed to economic downturn," said Aggarwal.

Internet analysts like Dan Gallagher, with Marketwatch, sees growth eventually slowing down.

"This company already has 2/3 of the internet search market. It's logical to think, 'How much more can they possibly grow?'" said Gallagher.

Gallagher said that because back in 2003, Google reported triple growth, and in 2004 their growth doubled. Currently, Google still remains the number one search engine and Efficient Frontier says 77 percent of what their clients spend on internet advertising, goes to Google. The rest goes to Yahoo and MSN.