Google defied the global economic downturn and delivered another strong set of profits in the third quarter of the year thanks to strict cost-cutting measures and strong advertising revenue.
The notoriously free-spending California-based company tightened its belt, pushing revenue up by 31% despite the escalating financial turmoil. Internet surfers clicking on advertisements helped to drive the firm's profits up 26%.
The company also drove down its costs by cutting back on capital expenses and holding back on hiring new staff.
Analysts had lowered their expectations for Google's results in the three months to September after fears that the credit crisis was weighing on other web companies and could spread to the internet search market.
But Google's focus on highly targeted online adverts appears to be better suited for weathering a slowdown in consumer spending, analysts argued. Its revenue climbed to $5.54bn (£3.2bn) from $4.23bn a year ago.
"It was just the shot in the arm that investors needed," Sanford C. Bernstein analyst Jeffrey Lindsay said.
Google handled 63% of US online searches in August, twice as much as its two closest competitors, Yahoo and Microsoft, between them. The spreading financial crisis is expected to hurt the internet advertising market as businesses cut spending or disappear altogether.
The Google chief executive, Eric Schmidt, described the current economic predicament as "uncharted territory". While the group held up in the third quarter, Schmidt was cautious going forward, saying that the company would be "very responsible in the management of our expenses".
"What we have concluded is that we are going to keep doing our thing," Schmidt said in an interview. "There is no change in the plan at Google. We'll ride this thing out."
Google grew by 519 employees, down from 2,130 a year ago, in what is typically a big hiring quarter. The company, which gives its employees free meals and other perks, now has 20,123 employees. Capital expenditures fell 18% from the second quarter to $452m .
"It probably wasn't the leanest ship on the sea," said Anthony Valencia, media analyst for TCW Group. "Now they have shown they can rein things in and show good profitability without hurting continued investment in long-term growth initiatives."
Google, which already has more than 70% of US search advertising spending, is looking to spur growth through new advertising strategies with possible opportunities in the video-sharing site, YouTube. Analysts are broadly confident about Google's growth prospects for the coming years.
Shares in Google, which have lost nearly 20% in the past month, jumped 10% on the back of the results.
Meanwhile, Yahoo also enjoyed strong share gains of 10.5% to $12.99 after the Microsoft chief executive, Steve Ballmer, suggested that his company would consider renewing discussions with Yahoo over a search partnership.
Microsoft had offered as much as $47.5bn this spring to buy Yahoo, which spurned the offer and struck an advertising partnership with Google.
