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Google profits climb 19% amid 'difficult environment'

Schmidt and Co. hail YouTube 'trajectory'

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CEO Eric Schmidt says Google has yet to find a mathematical model that can predict the future of the worldwide economy. But there's little doubt the company has developed a search ad monopoly capable of weathering the worst financial downturn since the Great Depression.

In the quarter ending June 30, Google revenues climbed to $5.52bn (£3.36bn), a 3 per cent increase over the same quarter last year. And as the company continues to cut costs amidst the global economic slump, profits reached $1.48bn (£0.9bn), a 19 per cent leap.

During a conference call this afternoon with industry analysts and reporters, Google continued to congratulate itself. "[We've] had a good quarter, one that demonstrates our resilience in what continues to be a difficult environment," Schmidt said. "We implemented careful cost controls to help our performance. Making our business more efficient has been our goal for the last two quarters, and it should put us in a good position to benefit from the eventual recovery - whenever that occurs."

Although Schmidt explained that Google can't predict the future, he seemed to indicate that one day it would. "It's too early for us to tell when the recovery will materialize. I wish that we could just prove it, that we could just do the analysis and figure it out, but we don't know how to do that yet."

In the meantime, the Mountain View Willy Wonka said, Google is streamlining its business without cutting back on what he calls innovation. "History shows that companies that invest in innovation during downturns emerge stronger than their cost-cutting competitors," he said. As an example, he cited the Google Chrome OS. But we're not quite why this would be considered innovative. It's a Linux kernel paired with a browser and some hardware drivers.

Schmidt boasted of revenue gains from Google Apps sales, mobile ads, and even YouTube display ads. But the company's core search and text-based AdSense ads for third-party websites continue to carry the load. Google-owned sites generated revenues of $3.65 billion (£2.22bn), or 66 per cent of the company's total revenues, while AdSense revenues reached $1.68bn (£1.02bn), 31 per cent of the total.

Yes, total revenue growth was a mere 3 per cent. But CFO Patrick Pichette boasted that if last year's dollar exchange rates were applied to this year's Q2 numbers, revenues would be $500m (£305m) higher. Google has compensated for the strong dollar at least in part, thanks to $124m (£76m) in benefits from hedging programs Google launched last year to guard against changes in foreign exchange rates.

Google's aggregate paid clicks - that is, paid clicks across all Google sites and partner sites - increased 15 per cent over the previous year. And though the cost of each click is down roughly 13 per cent, Google vp Jonathan "Perfect Ad" Rosenberg indicated that although ad bids had been down earlier in the year, they've now stabilized.

"Bids tended to decline earlier this year," he said. "And are no longer declining now - across the board."

But Google picked up some of the slack by slashing costs. In March, the company jettisoned about 200 sales and marketing folk, while shutting down anemic newspaper and radio advertising operations. Pichette said that year-over-year, operating expenses were roughly $120m (£73m) lower, and they were flat quarter-over-quarter.

Following all the back-and-forth over how much money YouTube may be losing, Schmidt and Co. also made a point of telling analysts and reporters they were pleased with the "trajectory" of the traditionally revenue-challenged video-sharing site.

According to Rosenberg, "monetized views more than tripled over the past year," saying the company is "monetizing billions of views of partner videos every month." Of course, the company - despite several requests from analysts - would not provide any additional insight into YouTube revenues.

"We don't give the economics of YouTube," Pichette said. "What we can tell you is that we're really pleased with the trajectory of YouTube and we're really pleased with it's revenue growth and in the not too distant future, we see a very profitably business for it." ®

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