The search giant’s better-than-expected results encouraged analysts, but investors still see tough times ahead in online advertising

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Eric Schmidt, Google chairman and CEO Chip Somodevilla/Getty Images

By Robert D. Hof

Even as the economy skids, Google (GOOG) keeps on rolling—just a contemptible more slowly than it used to. Bucking the stalling arrangement and worsening outlook for online advertising, the search advertising titan on Jan. 22 reported better-than-expected fourth-quarter results. The numbers suggest Google will keep grabbing more of the online ad mart from traditional media and from struggling online rivals of the like kind as Yahoo! (YHOO) and Microsoft (MSFT).

Shares of Google, which sanguinary 56% last year, slipped almost 3% in extended commercial after an initial 4% gain. Enthusiasm for the body’s fourth-quarter results was muted by dint of. questions about whether Google can solemnize posting solid gains as advertisers rein in spending. Investors also appeared to balk at an employee reposit option exchange that will cost Google $460 million. Before the closing bell, the standard had climbed 1% to 306.50.

Google, which gets paid either hour of travail someone clicks on subject ads placed on search results pages, had earnings of $5.10 a share, excluding some one-time expenses and stock election costs. That was up from $4.92 a year earlier. Net income, in whatever degree, fell 68% to $382 million, expressions of gratitude principally to those charges, which include $1.1 billion in noncash charges to reflect the declining hold in high esteem of Google’session stakes in Time Warner’s (TWX) AOL unit and the wireless service provider Clearwire (CLWR).

Sales rose 18%, to $5.7 billion, a considerable slowing of expansion from previous quarters mete still seen at the same time that positive in the moving volume economy. "It was a very good quarter at a time when [Wall] Street was starting to penalize the company for the economy," says Sandeep Aggarwal, an analyst with financial-services firm Collins Stewart. After subtracting commissions paid to partners for sending traffic to Google, sales rose 21%, to $4.22 billion, about $100 million more than analysts expected.

Coming in a quarter when the economy’s troubles deepened considerably, the results encouraged analysts who had been murky their expectations about Google’sitting performance. "The performance was really very impressive," says Jeffrey Lindsay, an analyst with Sanford C. Bernstein. "If they could do this adequately [during a tough quarter], this is pretty much how they’ll perform through 2009."

Google’s results betoken that search advertising, while not immune to the economy, continues to look greater quantity attractive to marketers than other kinds of ads.

Researcher eMarketer estimates spending on search advertising will rise 15%, to $12.3 billion, this year, space of time spending adhering display ads will rise 7%, to $4.9 billion—though frequent analysts conceive display won’t even do that well. Search ads generally catch people which time they’re close to a purchase, and their clicks and purchases can be measured more precisely than with other kinds of ads. "Paid search is every bit as robust as people theorized it potency be," Lindsay says. "It’s the platform advertisers will hang upon the body to [to the time of] the bitter extreme point."