Not recession proof

Google, helped by cost controls, still managed to increase its net profit in the first quarter of this year but Chief Executive Eric Schmidt said the economic environment remains tough.

"We're still basically in uncharted territory," Schmidt said on a conference call. "Google is absolutely feeling the impact. Users are still searching, but they're buying less. Ultimately, what that really means is the ads are converting less."

The Mountain View, California-based company reported a net profit for the first quarter of the year of $1.42 billion (948.8 million euros) compared with $1.31 billion in the corresponding quarter last year. Revenue was $5.51 billion for the first quarter, up six percent from the same quarter a year ago but down three percent compared with the fourth quarter of last year, Google said in a statement on Thursday.

Cost controls

Google executives said lower labor costs, as the company reset performance based bonuses for the new year, kept expenses in line. And after several years in which Google expanded its workforce, the company's headcount declined slightly in the first quarter to 20,164 employees worldwide.

Google announced three rounds of layoffs in the first quarter, although the 200 sales and marketing job cuts announced in March were not reflected in the latest headcount.

The company, which makes 98 percent of its revenue from internet-search advertising, said that revenue from outside the United States totaled $2.88 billion in the first quarter, 52 percent of total revenue.

Compared to other internet and media companies that depend on advertising revenue, Google has been extremely resilient to the economic downturn, though its revenue growth has slowed sharply from the heady 50 percent rates it used to enjoy.

"These results underline both the resilience of our business model and the ongoing potential of the web as users and advertisers shift online," Schmidt said.

No comment on possible YouTube deal

Google's CEO declined to comment on reports that the company had reached an agreement with major Hollywood studios to show full-length films and television shows on YouTube, which Google purchased for $1.65 billion in 2006.

Several leading technology blogs said Thursday that Google-owned YouTube had reached agreement with Sony Pictures and several other Hollywood studios to show full-length movies and television shows on the video-sharing website.