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Google money machine returns to overdrive

'An extraordinary end to a roller coaster year'

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Google's top secret money machine returned to overdrive during the fourth quarter, with the web giant reporting a 17 per cent leap in revenue from a year ago.

In October, as the company announced its Q3 earnings, Mountain View chief Eric Schmidt told the world that the worst days of the worldwide recession were over, and clearly, they are - at least for Google.

"This was a very strong quarter for Google and an extraordinary end to a roller coaster year by any measure," Schmidt said during a conference call with reporters and industry analysts.

After Q3, Google also said it planned to once again boost its spending, acquiring more companies and hiring more employees, and today, Schmidt confirmed this will continue through 2010. "It was clearly the right decision," he said, adding that the company will invest in more engineers and more sales staff in "key areas."

During the economic Meltdown, Google expanded "ad coverage" on its web-dominating search engine, letting more ads onto more pages. Throughout the recession, revenues expanded sequentially during all but one quarter, and that quarter - Q1 2009 - was still an improvement over the previous year.

That quarter was also profitable, after the company made some significant spending cuts.

But now that the economy is recovering - and big players are spending more - the company has turned the coverage dial the other way. According to AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google banned about 30,000 advertisers from its AdWords platform at the beginning of December.

As Google shrunk coverage, aggregate paid clicks - across Google sites as well as AdSense third-party sites - leapt 13 per cent from the previous year. And the average cost per click jumped 5 per cent. This led to revenues of $6.67 billion, up from $5.7bn in the fourth quarter of 2008, and profits climbed to $2.19 billion, a 35 per cent leap.

Google sites generated revenue of $4.42bn, 66 per cent of the total, while partner AdSense sites generated $2.04bn, 31 percent of the total.

The company's traffic acquisition costs (TAC) - what it pays to AdSense sites - were 27 per cent of its revenues in the fourth quarter, just as they were in Q4 2008. During today's call, an analyst said that many advertisers are claiming that their individual slice of the pie is shrinking, and though chief financial officer Patrick Pichette seemed to acknowledged this trend - at least during the fourth quarter - he downplayed its significance. "There's no big surprise there, and we continued to have greater partnerships with our AdSense partners," he said. ®

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