Google Says Ads Led Growth: Now What?

Google issued a rebuke to haters yesterday and laughed all the way to the bank as it reported better-than-expected financial results for the fist quarter. The company reported an operating income of $1.55 billion and $5.19 billion in revenue for the first quarter.

“We are obviously very pleased,” CEO Eric Schmidt gloated, during yesterday’s conference call with Wall Street analysts. But some insiders continue to say that Google has a rough road ahead in the ad biz sphere.

Schmidt said Google’s targeted ad business was responsible for the growth, saying international sales accounted for most of the company’s revenue – a first for Google.

Investors, who were prepared for a slowdown, rallied. In after-market trading, Google’s shares grew 17% to $525.96. (It’s currently trading at about $540).

In the earnings call, Schmidt also referenced the ad test with Yahoo, saying “It’s nice working with Yahoo and we like them very much.” Aaaw! Yahoo is set to report its earning on Tuesday and they will likely meet Wall Street’s expectations, industry watchers say.

Yahoo has said it expects to post revenue of between $1.28 billion and $1.38 billion. (Revenue for the fourth quarter last year was $1.83 billion). So, it is expecting a downturn, unlike Google, which posted $4.83 billion in its fourth quarter, significantly less than the $5.19 billion it’s touting now. But as Schmidt says, most of that growth was overseas, not domestic.

Industry watchers are still on edge about Google’s ad business – especially since recent comScore reports have indicated that Google’s paid clicks – their bread and butter – have declined precipitously. Google blames the decline on in-house initiatives to reduce bad clicks.

Google also said that the DoubleClick acquisition didn’t impact the company in the first quarter, but was likely to help grow its display advertising business.

The company pulled a rabbit out of its hat this time – it should be interesting to see how/whether the Yahoo-Google ad partnership pans out, and of course, if Microhoo teams up to take it down.

Some see rosy days ahead for Google and the industry overall:

“Google’s continued growth shows how digital advertising continues to prosper and offer efficiencies that attract advertisers and increased spend despite worries about the economy,” said Duncan Perry, director of corporate strategy at Steak Media. “Of particular interest is the growth in mobile searches mentioned by Sergey Brin on the earning calls with Wall Street; this is an area we feel is finally taking off for consumers and will continue to grow throughout 2008 and into 2009. We expect the integration of DoubleClick to lead to new tracking and targeting innovations this quarter and the next; it will also be interesting to see if a free ‘lite’ version of Doubleclick’s platform emerges in a similar vein to Google Analytics.”