Google's Earnings Soar

By JESSICA E. VASCELLARO

Google Inc. reported its strongest revenue growth in a year and issued its firmest public statement saying it would like to continue doing business in China, a week after it said it may pull out of the country due to a sweeping cyber attack.

Google reports strong fourth-quarter results, beating Wall Street's expectations on solid advertising growth. WSJ's Julia Angwin and Barron's Eric Savitz join the News Hub with the latest on the search giant's earnings report.

The Mountain View, Calif., company said its revenue rose 17% in the fourth quarter to $6.67 billion from a year earlier, up from only 7% revenue growth in the third quarter and 3% growth in the second quarter.

Meanwhile, Google's profit more than quintupled in the fourth quarter to $1.97 billion, or $6.13 a share, from $382 million, or $1.21 a share, a year ago. During the 2008 quarter, Google took a charge related to investments in AOL Inc. and wireless service provider Clearwire Corp.

The results indicate that Google's online ad business is growing about as fast as it was at the end of 2008 after a several-quarter slump. In particular, Google said it benefited from marketers continuing to shift spending online during the strong online Christmas shopping season. Google Chief Executive Eric Schmidt called the results a strong end to "a rollercoaster year by any measure."

Overall, Google's profit and revenue were slightly better than analysts had expected. Still, Google's shares fell in after-hours trading to $558 each, down 4.3% from their 4 p.m. close, as some investors hoped for even stronger growth.

Google announced its results nine days after its disclosure of a major cyber attack it said it traced to China.

In response, Google said it would stop self-censoring its Chinese search engine's results—censoring aimed at placating the Chinese government—and might pull out of the country, pending conversations with Chinese officials. Since then, Google has been vague about its business intentions in China, saying it was examining its operations there.

But in a call with analysts, Mr. Schmidt made it clear the company wants to continue doing business in China, one of the world's largest markets, even though it will stop censoring its results.

He said Google will change its censoring policy "a reasonably short time from now"—he gave no further details—but remains "quite committed to being in China."

He added that "we like the Chinese people and our Chinese employees. We like the business opportunities there and we'd like to do that on somewhat different terms than we have."

Also Thursday, Microsoft Corp. CEO Steve Ballmer said his company must comply with Chinese censorship laws as well as the laws and customs of any country where it does business.

"I think you have to respect sovereign nations to make that decision," Mr. Ballmer told an audience of Houston oil and gas executives and an energy forum organized by the company.

He added that Microsoft would let people know it removed information from its Bing search engine But he said "it's important we comply with the laws and conventions in the countries [where] we do business."

Mr. Ballmer added that other countries exert some sort of control over information; in France, it is illegal to trade Nazi paraphernalia, and the U.S. has strict curbs on child pornography.

In the past week, Google executives have had conversations with government agencies that are investigating the security and potential political implications of the attacks, which security experts say may have affected as many as 34 companies.

Two days after Google announced the attack, Mr. Schmidt went to the White House to discuss the incident with National Security Council staff, a White House official said. The meeting was initiated by Google and Mr. Schmidt provided the briefing "as a courtesy, since he was in Washington on other business," the official said. The CEO was in town to speak to a House Democratic caucus retreat.

In an interview, Mr. Schmidt declined to comment on the meeting. He added that Google has also begun conversations with the Chinese government but declined to comment further.

On Thursday, the back and forth between the U.S. and China over the attacks continued. Chinese Vice Foreign Minister He Yafei said Google's complaints about cyber attacks and censorship in China shouldn't be "overinterpreted" or linked to Beijing's bilateral relations with the U.S, according to the state-run Xinhua news agency.

In a speech on Internet freedom Thursday, Secretary of State Hillary Clinton called on the Chinese government "to conduct a thorough investigation" of Google's Chinese hacking allegations and to make the results of the probe "transparent." But Mrs. Clinton treaded gently on Google's allegations themselves, avoiding direct criticism of China in the matter.

Mr. Schmidt said Google's business was "strong in every geography" and across its main product lines, from its display-ad businesses and YouTube to its online software businesses. Google is betting on those non-search-ad areas to keep revenue growth up as its search business matures. "I was expecting there to be more variation across our businesses," he said.

He added that he is optimistic that Google will continue to benefit from consumers' shift to more cost-efficient online products as the economy rebounds. "I get up every morning assuming that everything is going to move to the Web or online," he said.

Mr. Schmidt said in the analyst call that Google would continue to invest heavily in promising areas in the coming year, particularly by hiring software engineers. Google added 170 net employees during the quarter, ending the year with 19,835 employees.

—Siobhan Gorman and Sky Canaves contributed to this article.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com