Google profit drops but still beats estimates

Strong holiday advertising sales led Google goog to a successful fourth quarter, even in recessionary times, with revenue of $5.7 billion, up 18% from the year-earlier quarter.

The good news from Google contrasted with missed forecast and 5,000 layoffs announced earlier Thursday by rival Microsoft.

Net income, however, tumbled 68% to $382 million, from $1.2 billion a year ago, as Google took a one-time charge to write down $1.1 billion in its investments in AOL and wireless company Clearwire.

"Both deals made sense to us then and make sense to us now," said Google CEO Eric Schmidt, on a conference call with analysts Thursday.

He said Google has responded to the economic turndown with "prudent management" of the business.

Like other tech companies, Google has had some layoffs — 100 contract employees were let go this month, and Google is hiring less. Only 99 employees were added in the quarter; Google used to add over 100 employees weekly.

To keep the staffers it has, Google announced a voluntary 1-for-1 stock-option exchange to be issued in March. About 85% of Google employees have some worthless options. (An option is a right to buy stock at a set price at a future date. It's worthless if the stock price is less than that price.)

Schmidt and other Google executives reiterated during the call that it intends to make it through the recession without cutting back on investment. "We're in this for the long haul," Schmidt said.

Google doesn't give sales estimates for upcoming quarters, or guidance.

"The fourth quarter was the easy part, we had the holidays," said Schmidt. He said future quarters would be "uncharted territory. We don't know how long this period will last, but we're prepared to get through it."

As always, Google generated nearly all of its revenue from the sale of online advertising, mostly those text ads that appear near search results. Paid clicks increased nearly 18% from the year-ago quarter, Google said.

Google dominates search advertising, with a 63.5% market share in December, according to measurement firm ComScore Media Metrix. No. 2 Yahoo yhoo has 20.5% and Microsoft msft 8.3%.

"Google has obviously figured out the formula that is almost recession proof," says Allen Weiner, an analyst at Gartner. "Companies will still need to advertise, and pay-per-click ads are affordable."

Investors were upbeat. Google's stock closed up $4.61 in after-hours trading, at $311.11 a share, after closing up in regular trading as well.

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