Google Earnings Dispel Fears of Ad Slump

In the midst of a flagging U.S. economy, Google released its first-quarter earnings Thursday. The results were surprisingly positive. The search engine giant reported a 42 percent increase in revenue.

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Google has blown away critics who said the sagging economy would hit the company's profits. But the Internet search and advertising behemoth has reported a rise in quarterly earnings, partly due to overseas Web surfers, and also because of a new online ad formula.

NPR's Laura Sydell has more.

LAURA SYDELL: Analysts had lowered expectations, because recently, they noticed fewer people were clicking Google's online ads. Steve Weinstein of Pacific Crest Security says when Google released its earnings, there was a collective sense of surprise. In the first quarter, the company's earnings were up 30 percent, or about $300 million in the midst of a slow economy.

Mr. STEVE WEINSTEIN (Pacific Crest Security): You know, people, I think, just kind of tended to overshoot on the low end, and are readjusting and recalibrating.

SYDELL: Google says analysts misunderstood why there were fewer people clicking on their ads this quarter. Improvements in the company's ad formula meant that those who did click were more likely to actually buy something. Their carefully targeted ads give them an edge in a slow economy, says Allen Weiner, an analyst at Gartner.

Mr. ALLEN WEINER (Analyst, Gartner): And in an uncertain climate, people who are looking for efficiency in their online dollars are probably turning to online advertising, because they get the best bang for their buck.

SYDELL: Weiner says Google also got a boost from its growing overseas operations. He says that's likely to make rivals Yahoo and Microsoft a little worried, because it might cut into an overseas market where both have done better than in the U.S. against the fast-growing Silicon Valley behemoth.

Laura Sydell, NPR News, San Francisco.

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