Google Kicks Ass

The numbers are out for the first quarter, and, in one sense, Google (GOOG) met all of Wall Street's expectations. The company's revenue reached $5.5 billion, which is 6 percent higher than the same time last year but 3 percent lower than the fourth quarter of 2008; this marks the first sequential decline in revenue in the company's history. But Google's cost-cutting was slightly more significant than analysts expected, and the company notched a nice profit of $1.42 billion. Once again, Google outperformed when everyone thought it would just do rather well.

This proves beyond a shadow of a doubt that as things now stand in the online economy, Google's business model allows it to thrive even in the worst recessions. The low cost of its text ads appeals to companies that are scaling back on advertising revenue, leading Google to command an even larger share of customers in the lean times. The average cost per click on the search ads has declined; Sanford Bernstein analyst Jeff Lindsay told the Washington Post that he estimates the drop may be as high as 11 percent, as advertisers lower their bids on the search terms. But the number of people clicking on such ads rose 17 percent from the first quarter of 2008, marking a substantial increase. Clearly, search ads will continue to dump buckets of cash into Google's coffers.

But what about the rest of Google's products? The company's video sites and cloud-based office software have yet to prove they're more than expensive toys, and Android, Google's mobile platform software, has yet to seriously challenge competitors such as the iPhone. But yesterday, YouTube managers announced that they have now inked deals with Metro-Goldwyn-Mayer, Sony (SNY), and CBS (CBS) to place movies, TV shows, and other content on the Web site. Many of these deals have been in the works for a while, but the announcement indicates that YouTube is serious about monetizing the site. For years, advertisers have balked at buying ads next to amateur video content; now, YouTube is clearly pushing to reserve an important space for the professional content advertisers prefer. In addition, CEO Eric Schmidt promised that more companies will announce they are adopting Android as the operating system for their products. Numerous smart phones are known to be in development, and Hewlett-Packard (HPQ) is widely expected to adopt Android for its line of netbooks.

Finally, Schmidt made favorable noises about pursuing a deal with Twitter, whose raw corpus of messages is a perfect advertising venue. Schmidt refused to go into specifics but clearly indicated that Google would be happy to help Twitter "and all other players in that space" set up search and advertising functions that could finally monetize social networking.

All in all, it was a helluva day for Google. The company raked in a fat wad of cash, made significant advancements in products that have yet to pay for themselves, and is flirting with expanding search ads into new territory. There was never any doubt about the company's dominance, but yesterday exceeded the sunniest expectations. And employees still get their free lunches! Sergey, Larry, and Eric must be feeling pretty good right about now.