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Google reports slower growth amidst slowdown news
18 April 2009

Omid KordestaniEven super-successful Google is feeling the pinch of recession as it reported slower profit and sales growth in the first quarter. The company also announced that its head of global sales, Omid Kordestani, would become a senior adviser to the CEO and Google's founders. Nikesh Arora will take over Kordestani's old job.

Net income climbed 8.9 percent to $1.42 billion, or $4.49 a share, the company said yesterday. Excluding revenue passed on to partner sites, sales were $4.07 billion, compared with the average analyst estimate of $4.1 billion.

Nikesh Arora Google reported first-quarter revenue of $5.51 billion, up 6 percent from the year-ago quarter but down 3 per cent from the 2008 fourth quarter - its first ever sequential decline. The figure was in line with average Wall Street expectations.

Google said paid clicks, by Web surfers on its text-based search ads, rose 17 per cent in the first quarter from a year earlier. But the revenue that Google derives per click appears to have declined, as advertisers reduced the bids they make for keywords in Google's auction-based advertising system.

''We're still basically in uncharted territory,'' CEO Eric Schmidt said on a conference call. ''The current economic environment, which everybody is all very, very familiar with, remains tough.'' "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, '' he added.

Schmidt said Google did not have any intention of changing its "conservative view toward cash management," in a sign that a major acquisition may not be on the near 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. (See: Google reportedly in talks to buy Twitter)

Compared to 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 per cent rates it used to enjoy.

As Google's growth rate slows amid the tough economic environment, CFO Patrick Pichette said seasonal fluctuations in business activity would become more apparent in the company's results. Google said the second and third quarters are seasonally weak.

After hiring for years, Google slimmed down last quarter. The company said last month it would eliminate about 200 jobs in sales and marketing, about 1 per cent of its workforce. The company announced plans to cut about 100 recruiting jobs in January, followed in February by the closure of its radio-ad business. That eliminated as many as 40 jobs. Google had 20,164 full-time workers at the end of March, down from 20,222 at the end of last year. ( Also see: Google trims 200 sales and marketing positions After closing down Print Ads, Google exits Audio Ads programme /  Google cancels print ad programme / Google cuts down on staff and operations)

Investors initially liked what they saw, boosting the stock almost 6 per cent in extended trading after the figures were released. After all, Google's slowdown looks good compared with the larger advertising market, which is expected to fall at least 5 per cent this year. But as it became apparent that Google's underlying business was feeling the effects of the recession, shares reversed course and gained only a fraction of 1 per cent.

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Google reports slower growth amidst slowdown