Google Shoots Higher (Update)

Aggregate paid clicks, which includes clicks related to ads on both Google sites and partner sites, grew 18% in the third quarter vs. a year ago, and 4% sequentially.

Traffic acquisition costs, which are the portion of revenue that Google shares with its partners, totaled $1.5 billion in the third quarter, up from $1.47 billion sequentially. Chief Financial Officer Patrick Pichette said the company would see additional pressure on traffic acquisition costs going forward.

The concern on Wall Street recently has been that Google would face the same pressure on online advertising spending as rivals like Yahoo!(YHOO Quote). A number of analysts pointed to advertisers cutting back on their budgets as they braced for further economic turmoil.

But Google's chief economist Hal Varian, who joined Thursday's conference call for only the second time, noted that advertisers are loathe to reduce their spending on advertising that actually shows results -- in this case, search ads, where Google makes the vast majority of its revenue.

Varian said that in a recessionary environment, Google sees potential upside. "As people shop more carefully, they're going to research what they buy," he said.

As for a strengthening dollar that has hurt some Internet companies like eBay(EBAY Quote), which have a strong presence abroad, Google managed to minimize its exposure through cash flow hedging.

About 51% of Google's revenue comes from overseas. But the company put into place a program of foreign exchange options to hedge forecasted revenue over the next 18 months. In the third quarter, it hedged revenue denominated in the euro, the Canadian dollar and the British pound.