Google reported better-than-expected earnings this afternoon. Here are the top-level highlights:

• Google reported revenues of $5.70 billion for the quarter ended December 31, 2008, an increase of 18% compared to the fourth quarter of 2007 and an increase of 3% compared to the third quarter of 2008.
• GAAP net income for the fourth quarter of 2008 was $382 million as compared to $1.29 billion in the third quarter of 2008. Non-GAAP net income in the fourth quarter of 2008 was $1.62 billion, compared to $1.56 billion in the third quarter of 2008.
• Google-owned sites generated revenues of $3.81 billion, or 67% of total revenues, in the fourth quarter of 2008. This represents a 22% increase over fourth quarter 2007 revenues of $3.12 billion and a 4% increase over third quarter 2008 revenues of $3.67 billion.
• Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 30% of total revenues, in the fourth quarter of 2008. This represents a 4% increase over fourth quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion.
• Revenues are roughly equally divided between US and international markets
• UK revenues were 12 percent of overall revenue, compared to 14 percent a year ago.

From the earnings call presentation:

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Google also announced a very novel program that will allow employees to exchange their current stock options for the same number of new options valued at the current share price. This is intended to address the fact that roughly “85 percent” of Google employees’ options are “under water” given the slide in Google’s stock price over the past several months. The hope is that this would help retain employees who may be frustrated that their options have lost so much value.

Here are some other notes coming out of the release and the conference call:

• Google’s operating margins are approaching 40 percent
• Google saw paid click growth is 18 percent YoY and 10 percent vs. last quarter
• Google has seen dramatic growth in mobile search query volumens and usage this year
• The company also touted the growth of apps, sying that roughly 1 millions businesses are now using them.
• YouTube is gaining momentum as a display ad platform. It’s fully integrated into DoubleClick.  In addition, clicks on ads in YouTube/video are higher than on most other Google properties
• Google saw paid search revenues growth of 18 percent (very strong in this environment)
• Traffic acquisition cost are down

Finally Google CEO Eric Schmidt said he didn’t know how long this period of recession and uncertainty would continue but Google would get through it regardless.

There’s more discussion on Techmeme.

Related Topics: Google: Business Issues | Top News

About The Author: Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling. See more articles by Greg Sterling