Ad Growth Still Strong, Google Says

Google said it has seen no effect from a slowing economy on its advertising business, as it reported a 17 percent jump in profit and a 51 percent growth in revenue in the fourth quarter.

The result represents a slowdown in Google’s growth rate and fell shy of expectations. The company said it remained bullish about its business, regardless of the outlook for the overall economy.

“We have not seen any impact as of now,” said Eric E. Schmidt, Google’s chief executive, in an interview Thursday afternoon after the financial report was announced.

Mr. Schmidt said he had yet to see weakness in any advertising category.

It is not clear whether the comments from Google, the largest seller of online ads, will calm growing fears that a slowdown in the economy could take a bite out of online advertising.

While some analysts view Google as a bellwether for the online advertising sector, others say that its business relies disproportionately of small text ads that appear next to search results. Those ads tend to produce immediate results for advertisers because they drive traffic to their Web sites.

Analysts believe they are more impervious to a slowdown than banner ads, which are aimed at building brand awareness and are common on most sites.

“I don’t think Google’s ad model is insulated from a recession, but it is probably less vulnerable to cutbacks than other online ad models and definitely than traditional advertising,” said Scott Kessler, an equity analyst with Standard & Poor’s.

This week, Yahoo said it was too early to determine whether a slowdown in sectors like retail, housing, finance and travel would have an impact on its online advertising business.

During a conference call with investors, Google executives were upbeat about both the company’s results and its prospects.

“We are very, very pleased with our year and also with the quarter that just ended,” Mr. Schmidt said. He said that the movement of ad dollars from traditional media to online media is a trend that is not going to reverse. “We are optimistic about 2008,” he added.

Google executives went so far as to suggest that they might benefit in some ways from an economic downturn. Jonathan Rosenberg, senior vice president for product management, said worries about the economy could lead consumers to spend more time online searching for good deals. “If people are doing more comparison shopping and looking for bargains, that could be a positive,” he said.

The company’s shares closed at $564.30 during regular trading, up $16.03 for the day, or nearly 3 percent. But its stock fell 6.5 percent after hours, to $527.40.

The Internet search giant reported net income for the quarter of $1.21 billion, or $3.79 a share, compared with $1.03 billion, or $3.29 a share a year ago. Excluding items like stock based compensation, income was $4.43 a share, slightly below the $4.45 expected by Wall Street analysts.

Google said revenue in the last three months of the year rose to $4.83 billion, from $3.21 billion a year ago. Excluding commissions paid to advertising partners, a measure closely watched by Wall Street analysts, Google’s revenue jumped to $3.39 billion, from $2.23 billion a year earlier. Analysts had expected revenues, without partner commissions, to be $3.45 billion.

However, Derek Brown, an analyst with Cantor Fitzgerald, said that the results, “don’t indicate significant changes in the competitive landscape, the company’s growth trajectory or profit levels.”

Google also had some difficulties finding effective ways to advertise on social networks like MySpace. Sergey Brin, Google’s co-founder and president for technology, said some of its experiments did not pan out. But he said social networks represent “a big opportunity, because there is so much inventory.”

One issue weighing on investors is whether Google will win an auction for wireless spectrum, which is being conducted by the Federal Communications Commission. Google had promised to bid at least $4.6 billion — the reserve price set by the agency — for a portion of the spectrum known as the C Block.

The F.C.C. said it had received a $4.7 billion bid for the C Block on Thursday morning. The F.C.C. will not identify who places top bids until the auction for the C Block and for other portions of the spectrum are completed, a process that could take weeks. Many analysts believe that Google has no intention of winning.

But the uncertainty has been a drag on Google’s shares. Some investors fret that if the company won the spectrum, it might have to spend even more to build out a wireless network. Google ended 2007 with more than $14 billion in cash and marketable securities.