New York — Consumers may be moving cautiously in their spending due to deteriorating economic scenario around the globe, but innumerable opportunities still exist in the rest of the online advertising sector to attract their interest, and despite an uninspiring day of earnings reports from the nation’s top tech companies, search engine behemoth Google Inc., last week reported stronger-than-expected fourth-quarter financial results reporting an 18% increase in revenue.
Furthermore, in an attempt to ride the tide and absorb its workers, the company has unveiled a voluntary stock option scheme for its employees. As per the latest scheme, the company would offer employees the choice to exchange their stock options for ones with lower exercise price — the price employees would pay to convert to an option into stock.
The move was prompted by a 47% drop in Google’s stock price over the past year, leaving about 17,000 employees holding options that are “under water” and cannot be cashed in now at a profit.
CEO Eric Schmidt and other executives said during a conference call to talk about the results that the company’s performance during the quarter had been strong and that they were satisfied, considering the current global economic problems.
“Google fared better in the fourth quarter even with an increasingly difficult economic environment. We had strong search query increased annually, revenues were up in most verticals, and we had tight control of our costs, something which eluded us perhaps in the past, but we got the formula down now,” Schmidt says.
Although the company’s net profit dropped 68% to 382 million dollars for the fourth quarter ended December 31, 2008, as compared to $1.29 billion a year ago, Google said in a statement. Total revenue reached $5.7 billion, up 18% from the same time last year, and up 3 percent from the last quarter.
At the end of the fourth quarter Google has $15.85 billion in cash.
According to the statement, revenues from outside the US touched 2.86 billion dollars in the fourth quarter.
Schmidt added, “It is indistinct how long the global depression will last, but our focus remains on the long term, and we will continue to invest in Google’s core search and ads business as well as in strategic growth areas, such as display, mobile and enterprise.”
Google chiefs have emphasized continued confidence in the company’s business model, which relies overwhelmingly on pay-per-click (PPC) text ads delivered along with its search engine results and in Web pages of third-party sites.
This type of advertising concept is the trendiest online format, accounting for about 40% of online ad spending, and Google has a market share of about 75% of search ad spending, according to various industry estimates.
Although Schmidt praised his company’s strength in a weak economy, signaling the challenges are becoming more daunting by describing the fourth quarter as “the easy part” and calling the upcoming months “uncharted territory.”
“We are not sure how long this period will last,” Schmidt told analysts in a conference call. “We obviously hope it will be short. We are certainly prepared to get through this, no problem.”
As is traditional for Google executives, Schmidt refused to make forecasts, but he expressed optimism that Google will be able to weather the global economic recession, thanks to its business model and to its management strategies in both the short and the long term.
Jonathan Rosenberg, senior vice-president of product management, stated that Google continues to expand its worldwide search project, in which it increasingly mixes more search result types, such as news, videos, books and images, into its general Web search engine, instead of just providing regular Web page links.
Google ended the quarter with 20,222 full-time employees, up from 20,123 full-time employees as of September 30, 2008. The company closed 2008 with $15,85bn in cash, cash equivalents and short-term marketable securities.
Regardless of the current reports, Google is performing far much stronger than its rivals Yahoo, whose earnings has been declining for much of the past three years, and AOL, which has become an albatross for its owner, Time Warner Inc.
“Undoubtedly it is a sign that the company thinks its revenue growth is not going to be what they thought it was going to be,” said Signal Hill Group analyst Todd Greenwald. If the recession deepens, Greenwald and other analysts suspect Google’s revenue in the current quarter could be lower than it was in the fourth quarter. If that happens, it would be the first sequential decline in Google’s quarterly revenue.