Google bucks the recession, beats analyst expectations

Google beat earnings forecasts for the first quarter ended March 31 despite a global recession that is affecting the company's main revenue engine, online advertising.

Google CEO Eric Schmidt said he was satisfied with the quarterly financial performance in light of the economic climate. Schmidt attributed the growth to increase search queries amid declining advertising spending.

Google shares rose more than 2% on Thursday against the backdrop of a stock rally buoyed by positive news from the Federal Reserve. It reported first-quarter 2009 revenue of $5.51 billion which is a 6% increase compared to first-quarter 2008 but a 3% decrease over the $5.7 billion the company reported for its fourth quarter '08. The company now makes more money from outside the US (52%) than it does domestically.

Google money

The company also saved money by controlling costs. Executives flew coach (of course the founders bought a personal jumbo jet), they've eliminated stagnant projects like Dodgeball and radio ads and they've enforced a hiring freeze including cutbacks in recruiters. Also, the company said last month it would eliminate about 200 jobs in sales and marketing, about 1 percent of its workforce.

All of that is well and good. However, something to consider: Google makes 95% of its money from online advertising, most of which is against its search engine. Google owns over 60% of the search engine market which does continue to grow in numbers overall. There isn't much room left for Google to grow.

Google is getting close the saturation point in its main business.

If Google is going to continue to grow at its pace over the past five years, it is going to need to find some additional revenue streams.

Potential areas where Google could see some revenue growth include: Google Android OS, Google apps for business, Youtube and Google Shopping and Checkout.

It will be interesting to see what Google comes up with in terms of long-term revenue growth opportunities.

Copyright © 2009 IDG Communications, Inc.

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