Google's stock price chart from its IPO in August 2004

Google on Thursday reported a 68% fall in fourth-quarter profit, hit mainly by a writedown in its investment in AOL (America Online web service), but sales remained strong despite recession times.

The web's top search company reported net income of $382 million, or $1.21 a share, down from $1.21 billion, or $3.79 a share, a year earlier. Revenue increased at an 18% annual rate, down from 31% in the third quarter, to $5.7 billion, from $4.83 billion. Profit was hit by a $1.1 billion charge on its investments in Time Warner's AOL unit and wireless company Clearwire Corp.

Google said paid clicks, a metric of how frequently consumers clicked on its ads, increased 18% from the fourth quarter of 2007, signalling that its search advertising model is holding up well.

Google announced a new option plan, which will let employees whose stock options are “underwater”, or carry an exercise price higher than the current share price, exchange them for new options at existing prices. The arrangement, prompted by a 59 per cent plunge in the Google share price from its peak in late 2007, was intended to give workers “more incentives to remain at Google” and contribute to its success, the company said.

Repricing share options during the dot-com boom, had drawn a lot of flak.

Chief Executive Officer Eric Schmidt said in an interview on Thursday: “Would you prefer we had the Wall Street firm’s bonus model? That doesn’t seem a very good model to me.”

He added: “Part of the compensation here is stock – it’s how it happens in tech, it has to have some value in the long term.”

Schmidt said in an interview he was satisfied with the steps Google had taken to cut in costs to date, but said the future was cloudy. "We adjusted our spending and model and we did well in Q4 but we don't know how long [the economic downturn] will go on."

“We have strong search query growth year on year and revenue up in most verticals and we had tight control over costs, something which had eluded us perhaps in the past but we got the formula down now,”  Schmidt  said on a conference call, with analysts. “In some ways, Q4 was the easy part,” Schmidt says, adding that while last quarter Google said it was going to be in unchartered territory, whereas “It’s now clear we’re in a world-wide recession, as everybody knows.” And we don’t know how long this period will last, he added.

Search advertising, Google's main business, is expected to rise 15% this year, and overall online advertising is expected to increase 9%, according to researcher eMarketer.

Results detail

Google UK - the online retail market 2009 - Europe’s largest online market; 18.5% of media spending was online in the first half of 2008 in the UK, a 21% year on year increase compared with about 3% in Ireland

Why online retail can help the high Street to speed up in the slowdown

Matt Brittin, director, Google UK: “Despite the tough trading climate, there is no slowdown in consumers’ adoption of the Internet to research and purchase goods and services. Google’s data shows consumers are shopping for value with an increasing volume of searches for money saving ideas, discount vouchers and safe savings.

The UK is Europe’s largest online market with residents already averaging 33 hours per month online. Online technology now offers a clear and unambiguous measurement of every penny spent online. For e-commerce marketers, keeping pace with the demands and interests of their customers presents a real opportunity to develop their competitive edge and invest in long term growth and profits in the most cost- effective way possible.

Businesses looking to react fast to current search trends or convert website visitors into buyers have powerful free tools at their finger tips like Google Analytics, Website Optimiser and Insights for Search.”

Online retail market:

• Verdict Research has forecasted online retail growth of 18.6% in 2009, the second year of double digit growth.
• Verdict Research latest findings suggest that, excluding internet sales and sales at grocery multiples, retail spending growth on the high street will shrink by over 4%, the largest drop since Verdict's records began in 1965.
• Play.com says it is beating the credit crunch with a 24% jump in sales during the Christmas period compared with last year.
• An Interim Management Statement from Debenhams said the retailer has revealed strong growth online. Debenhams Direct, the online business, continued to grow strongly with year-to-date visitor numbers and sales up 39.2% and 37.4% respectively
• Amazon.com, meanwhile, has not revealed trading numbers but says it enjoyed its best-ever holiday sales this year — despite overall online spending falling in the US. More than 6.3 million items were ordered worldwide on Monday 15 December, its peak day.
• Sainsbury's saw online sales grow by 27% in the last quarter of 2008 in results that saw overall like-for-like sales up by 4.5%, excluding fuel, over the period.
• Marks & Spencer's online sales increased 29% during the third quarter of its financial year despite the economic downturn and a like-for-like UK sales fall of 7.1%
• Christmas trading results from high street fashion retailer Next showed its stores had seen a like-for-like decrease in sales of 7%, while the Next Directory, which accounts for 60% of the brand's online sales, saw a 1.1% increase since last year.

The UK opportunity:

• Growth in UK online spending for November surged 26% on October [IMRG/Capgemini, Dec 08]
• Despite difficult conditions, UK growth was up 16% on last year [IMRG/Capgemini, Dec 08]
• Sales of shoes and accessories grew ahead of the Christmas party season, by 32% and 108% respectively [IMRG/Capgemini, Dec 08]
• But the growth in sales of clothes (18%) failed to match this, demonstrating that shoppers may be updating old looks in favour of splashing out on a new wardrobe [IMRG/Capgemini, Dec 08]
• 70% of UK population is now online [internetworldstats.com, June 08]
• UK has 20% of US population, but 60% of its ecommerce market
• 17p in every £1 is spend online in UK [IMRG/Capgemini, July 2008]
• 18.5% of media spending was online in the first half of 2008 in the UK, a 21% year on year increase [IAB, Oct 2008]