MOUNTAIN VIEW, California: Google's profits rose by 26% in Q3,  comfortably ahead of analysts' expectations, but were down on the 35% increase recorded by the search mammoth in this year's second quarter.

Revenues improved by 31% year-on-year to $5.54bn (€4.1bn; £3.2bn), compared with a 39% upswing in the second quarter.

Net income also rose to $1.35bn from the total of $1.07bn recorded in the same period in 2007. 

According to Google's figures, clickthrough levels for search ads remained at a similar level to last year, at around 18%.

One area that did slow was recruitment, with Google hiring just 519 additional full-time staff compared with over 2,000 in Q3 2007; another was capital expenditure, which fell by 18% to $452m.

According to ceo Eric Schmidt (pictured above), the company is planning to increase investment in its display advertising capabilities, and in developing its range of online software for businesses. 

He also stated that Google is keeping "a very close eye on costs" as the global economy entered "uncharted territory", arguing "there is a lot more that we could do" to reduce expenditure if required.

Speaking of Google's proposed tie-up with Yahoo, he added, in relation to opposition to the deal: "Many of the complaints are based on the fact that people don't understand how auctions work."

Data sourced from Wall Street Journal Online; additional content by WARC staff