Updated from 4:41 p.m. EDT

Google ( GOOG) blew past analysts' profit estimates with a strong first-quarter performance but registered its first sequential quarterly decline in sales.

The Internet search shop posted adjusted earnings, excluding one-time items, of $1.6 billion, or $5.10 cents a share. That's up from pro forma earnings of $4.84 in the year-ago quarter and more than the $4.93 profit analysts had expected, according to Yahoo! Finance.

Sales for the quarter, minus traffic acquisition costs, were $4.07 billion, down from the $4.22 billion in the fourth quarter and ending Google's sequential growth streak. Analysts had expected sales of $4.08 billion.

Google shares surged 5% soon after the earnings release as investors cheered the company's apparent recession defying results.

The company saw healthy growth in paid click advertising. The number of ads placed on sites grew 17% from year-ago levels and were up 3% from the prior quarter.

This news confirms reports by analysts going into the earnings release who spotted solid growth in search traffic. A comScore report on March numbers released Tuesday showed growth in U.S. paid clicks. The report also said Google increased overall marketshare gains.

The loser in that marketshare battle appeared to be Microsoft ( MSFT) and not No. 2 rival Yahoo! ( YHOO), which managed to hold its 20% share of the business, according to a Jefferies analyst report.

In a rare, if not unprecedented move, Google reduced its staff size by 54 employees in the quarter. Google says it has 20,164 full-time employees, down from 20,222 at the end of the year.

In the question-and-answer segment of Google's conference call Thursday, the company declined to make specific comments or give guidance, but it did praise its performance given the pressures of the global downturn.

"The economic situation remains difficult and it's a tough economy out there, said CFO Patrick Pichette, "and that continues to be uncharted territory in so many dimensions."

Google generated $2.25 billion in cash in the first quarter, up from $2.12 billion in the prior quarter and now has $17.8 billion in the bank.

Asked what the company's plan was for the cash, CEO Eric Schmidt said he wasn't feeling any pressure to spend it.

"Cash in not burning a hole in our pocket," Schmidt said on the conference call. "We continue to evaluate," he said, adding "our view at the moment is to remain conservative."

Google shares rose 2.3% to $397.63 in afterhours trading Thursday.

Meanwhile, the exodus of top executives at Google continues.

Google said that after 10 years with the company, sales chief Omid Kordestani would leave his position but stay on as a "special advisor." International operations chief Nikesh Arora is taking Kordestani's job.

This is another big recent departure of key Google executives. Last week, Asia and Latin America sales chief Singh Cassidy said she was leaving Google for private equity shop Accel Partners. And last month, U.S. sales chief Tim Armstrong left to lead Time Warner's ( TWX) AOL effort.

The talent flight is giving some investors troubles.

"Three of the top four sales people at the company have left their jobs in the last 60 days," said one money manager, who asked not to be named. "These are red flags in my book."

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