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Google sees fourth-quarter revenue, earnings rise

Revenue and earnings beat analyst estimates as the company also sees an increase in paid clicks and the average cost per click.

With the economy beginning to show signs of a recovery, Google's growth continued in the fourth quarter as the company beat analyst estimates and saw revenue rise 17 percent from a year ago on strong ad sales.

Last quarter was an "extraordinary end to a roller-coaster year by any means," Chief Executive Eric Schmidt said in a conference call with analysts. "The digital economy continues to grow very rapidly, and specifically we're moving literally eyeballs and advertising online. And we continue to benefit from that...We're back in business full blast."

Revenue for the quarter ended December 31, excluding traffic acquisition costs, was $4.95 billion, slightly higher than the $4.92 billion analysts were expecting. Including those costs, Google posted total revenue of $6.67 billion.

Earnings were $2.19 billion, or $6.79 a share, excluding stock-based compensation and other costs. That was higher than the analyst expectations of earnings per share of $6.50, and up from year-ago earnings of $1.62 billion, or $5.10 per share.

Including all costs, earnings were $1.97 billion, or $6.13 a share, compared with $381 million, or $1.21 a share, a year ago. Traffic acquisition costs, the portion of revenue shared with Google's partners, totaled $1.72 billion and represented 27 percent of ad revenue.

Despite the strong numbers, Google shares fell in after-hours trading, possibly because it wasn't a blow-out quarter. They dropped 4.6 percent from a close of $582.98 per share to $556.

Paid clicks rose 13 percent from a year ago and the average cost per click increased 5 percent.

Google-owned sites generated revenue of $4.42 billion, or 66 percent of total revenue, up 16 percent from a year ago. Meanwhile, revenue from partner sites through the AdSense programs was $2.04 billion, or 31 percent of total revenue, up 21 percent from a year ago. International revenue totaled $3.52 billion, representing 53 percent of total revenue.

The company did not give guidance in its earnings release but said it expects to continue to make significant capital expenditures. Google also will continue spending on hiring, particularly in engineering and sales, and on technology innovation, specifically search, as well as acquisitions, executives said. "The pace of deals in Q4 shows were at least on the path of one per month," Schmidt said. "We expect that to continue."

Google said it has $24.5 billion in cash and 19,835 full-time employees, up from 19,665 at the end of September.

Executives said advertising was strong during the fourth quarter. "YouTube is monetizing well," Jonathan Rosenberg, senior vice president of product management, said on the conference call. He declined to provide more details.

The company also saw more spending from the bigger advertisers, and advertisers in general are spending more of their ad budgets on the Internet, said Nitesh Arora, head of global sales. "There was an uptick in retail advertisers' online spending," he added.

Meanwhile, the company launched 550 quality enhancements to its search service, expanded the capabilities of its universal search, launched music and real-time search, and the index got bigger and faster, Rosenberg said.

The company is going to "look at making all of our products more social," he said, suggesting that there could eventually be links between a search result and where the searcher is located or what friends of the searcher think of the result.

Schmidt was asked about the situation with China since the company revealed last week attacks on its network from China and monitoring of Gmail users who are human rights activists. As a result, the company says it will stop censoring its Web results there and has threatened to withdraw from the market if necessary.

"We like the Chinese people. We like our Chinese employees," Schmidt said. "We remain committed to being there."

Executives were also asked about their strategy with the Nexus One Android-based smartphone, which would seem to be putting them in competition with their mobile phone partners in distribution.

"There's been a lot of confusion about that," Schmidt said. "What the Nexus One is really about is a new way of buying a phone. The Nexus One is simply the first of a series of examples where you can purchase a phone online from one or a multiple of manufacturers, provision it online and have it work... So far, our partners have understood that message and they are OK with it."

Updated 2:32 p.m. PST with comments from conference call and after-hours stock slide.