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Google Revenue Beats Expectation, Shares Surge

As the company begins to integrate DoubleClick, CEO Eric Schmidt said that Google's search, ads, and apps strategy has had a transformative effect on its business.

Exceeding investor expectation, Google on Thursday reported revenue of $5.19 billion for the first quarter of 2008, 42% more than it reported in the first quarter of 2007.

"Our ongoing innovation in search, ads, and apps helped drive healthy growth globally across our product lines, yielding another strong quarter for Google," CEO Eric Schmidt said in a statement. "As we integrate DoubleClick into our advertising platform, we see exciting new ways to improve the user experience and increase value for our advertisers and partners. Also, while exercising operational discipline, we continue to explore opportunities that add value to users everywhere and to Google in the long term."

Google reported non-GAAP earnings per share of $4.84. A Bloomberg survey of 25 analysts predicted $4.52.

Google's stock surged in after-hours trading. As of 5 p.m. EDT, Google shares were up more than 17%.

Google reported a decline, albeit a slight one, in its traffic acquisition cost (TAC) as a percentage of ad revenue, which came to 29.2% in the first quarter, compared with 30.3% in the fourth quarter of 2007. Since 2005, its TAC as a percentage of ad revenue has been trending downward, with the exception of the fourth quarter of 2007. In the first quarter of 2005, Google's TAC percentage came to 37.2%. It was 31% in the first quarter of 2007, 29.9% in the second quarter, and 29.1% in the third quarter.

In a conference call for investors, Schmidt said that Google's search, ads, and apps strategy has had a transformative effect on the company's business.

"We're showing fewer but much better ads, ... and that's a key part of the Google success story," Schmidt said.

Schmidt also took a moment to dismiss recent reports that Google's paid click growth was flagging. "Paid click growth is much higher than has been speculated by third parties," he said.

Google reported that paid clicks on its sites and partners' sites grew approximately 20% from the first quarter of 2007 and 4% from the fourth quarter of 2007.

Schmidt also expressed optimism about Google's business in China. "We are seeing market share growth and revenue growth as we learn to operate in that environment," he said.

Responding to an analyst's question, Schmidt reiterated a previous statement to the effect that the U.S. economic downturn has no significant impact on the company's business. "On the macro side, we've looked at this really carefully and we do not see an impact as of this time," he said, adding that Google is well positioned should the economic situation deteriorate because its ad model is so targeted.

Google co-founder Sergey Brin expressed optimism about Google's future in light of growth in mobile search and mobile advertising. He did not offer specific figures to quantify his expectations of the mobile market.

Schmidt declined to go into detail about Yahoo's experiment with using Google to serve its ads beyond saying that the test is in its second week. "It's nice to be working with Yahoo," he said. "We like them very much."

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