Better times found

Google: Google is starting to cash in on the recovery. The Internet search powerhouse has weathered the economic storm in the highly cyclical advertising market. Impressive first-quarter results show a turnaround is now well under way. Even better for shareholders, Google is still keeping a tight rein on costs and capital expenditure.

Complicated algorithms aren't necessary to find the evidence. Google's revenue increased 24 per cent from a year ago and net profit was 35 per cent higher. While the US business powered results - "advertisers are coming back in droves" is how Patrick Pichette, the chief financial officer put it - overseas search, YouTube and its mobile business all did well too.

Yet for all its seeming reach, the company showed restraint. Google keeps on talking about hiring more engineers and marketing gurus, but headcount is essentially flat over the course of the past year. Likewise, while Google warns every quarter it will invest heavily, capital expenditure was a mere $239 million - less than it spent in first quarter 2009.

The result was an astonishing $2.4 billion of free cash flow. This discipline is impressive considering just how much firepower the firm has at its disposal. Google can boast more than $26 billion of cash and short term investments on its balance sheet. Such sums can often burn a hole in a board's pocket.

Google, of course, isn't without challenges. US antitrust authorities are worried about the company's ambitions. Formerly friendly Apple is emerging as an increasingly bitter - and dangerous - rival. But there are more than enough reasons to remain confident about Google's prospects.

Advertisers are still shifting spending to the Web. Google, with its 65 per cent share of search should keep benefitting disproportionately. And new areas such as mobile are growing quickly. With Google trading at 21 times forecast earnings - far cheaper than Amazon and on par with Apple - there's not much reason for shareholders to look elsewhere right now.