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With Microsoft bumping its earnings news to an earlier time slot, after the close of markets Thursday all eyes were on Google.  Would worsening ad trends show heavily in the Q4 and full year results? Or like Apple the day before, would Google outperform the economy and best expectations?  The numbers tell the tale:

Analysts were expecting EPS of $4.95 a share, excluding onetime elements (non-GAAP).  Net revenue was forecast at 4.12b.  Paid click growth was estimated to be 17%.

In the actual tally, Google earned $5.10 a share (Non-GAAP) on net revenues of $4.2b. Click growth came in at 18% year over year.  Gross revenues for the quarter were $5.7b, an 18% year over year gain and a 3% sequential improvement.

GAAP EPS for the fourth quarter was $1.21 on 317 million diluted shares outstanding, compared to $4.06 for the third quarter of 2008 on 318 million diluted shares outstanding. Google also wrote down $726 million of its $1 billion investment in AOL.

The news was better than expected. Though, even in beating expectations, it’s worth noting Q4 profits were off 68% year over year.

A good part of Google’s success in owes to careful management of expenses. In the conference call, Eric Schmidt said the company “had tight control over costs, something which had eluded us perhaps in the past, but we got the formula down now.”

During the quarter only 99 jobs were added to the firm’s total headcount.  Operating expenses were held down at 29% of revenues as compared to 31% for the same period last year.

An increasing reliance on revenue from Google owned sites, and reduced traffic acquisition costs (TAC) were also a factor.   During the fourth quarter, Google owned sites generated 67% of total revenues, or $3.81b.  This was a 22% increase over Q4 2007 and a sequential gain of 4% over Q3 of 2008.  Traffic acquisition costs were pared back to 27% of advertising revenues compared to 28% during Q3.

In conjunction with the earnings announcement, Google also announced a plan to allow employees to exchange “under-water” options for repriced grants.  The voluntarily program, which wasn’t officially called a “repricing” comes with several conditions.  First among them, any participating employee will be required to extend their existing vesting schedule by twelve months. The new options will also vest no sooner than six months after the exchange.

The pricing for the adjusted grants is expected to be the closing price on March 2nd. Google will record a charge estimated to be about $460m over the next five years to account for the modifications.   The company deemed the program a necessary tool to retain employees and provide incentives.

Related Articles from Metue
•Google Q3 Earnings
•Google Q2 Earnings
•Google Q1 Earnings
•Google Grabs Life Images (and Europeana Library Gets a New Launch Date)
•Google Book Search Copyright Suit Settled
 
More detailed press coverage on Google’s finances can be found at:
•Yahoo Finance
•Google Finance
•Marketwatch