With three rounds of layoffs announced since the year began, Google is showing rare signs of vulnerability.

As it prepares to deliver first-quarter results on Thursday, investors are anxious to see if the Google machine has any visible cracks, or if the No. 1 U.S. Internet search company continues to sidestep the worst of the storm.

Whenever Internet companies cut costs, people take any cost cutting as a really negative signal, said Sanford Bernstein analyst Jeff Lindsay.

But he said Web searches on Google continue to increase, while revenue from paid clicks -- people clicking on Google's text-based search ads -- appears to be holding up.

We think they've been cutting costs prudently and sensibly, and it's probably a good indication that they're going to have good margin performance, said Lindsay, who rates Google's stock outperform.

With global economies sputtering, and one recent report forecasting a 5 percent decline in U.S. online advertising spending this year, business conditions for Google and other Internet companies are as bad as they have ever been.

Analysts expect a sequential drop in revenue for the first time in Google's history as a public company. The average forecast, according to Reuters Estimates, is for first-quarter revenue of $5.53 billion, a 3 percent fall quarter over quarter, or a 6.6 percent gain year on year.

Still, that is better than Google's rivals. Yahoo has projected sales falling as much as 16 percent year-over-year in the first quarter. And some analysts expect revenue at Time Warner's AOL unit to slide 19 percent or more in the first quarter from a year ago.

Thus Google's stock, which was trading at around $378 on Monday, has risen 23 percent since the eve of its last quarterly earnings report, outperforming the broader market.

Google shares trade at 18 times forward earnings versus the 38 times multiple for rival Yahoo.

SHARES OUTPERFORM

Analysts, on average, expect Google to earn $4.20 a share in the first quarter, up about 2 percent from $4.12 in the year-earlier period, according to Reuters Estimates.

Roughly 97 percent of Google's revenue comes from advertising. Of that, the vast majority is tied to Google's search-based advertising system.

Because advertisers only pay when a Web surfer clicks on one of Google's search ads, analysts say the ads provide customers with a better return than other forms of advertising such as broadcast radio ads or Internet banner ads.

But JP Morgan analyst Imran Khan said in a recent note to investors that the tight credit market could force small businesses -- which he reckons accounts for 20 percent of Google's revenue -- to cut back on ad spending.

Google does not give financial guidance but Wall Street will be paying close attention to the comments executives make about the economy on Thursday's conference call.

Google said in March that it was laying off 200 workers in its sales and marketing groups, following job cuts in its recruiting group and its shuttered broadcast radio advertising business in January and February.

It is not news that Google is being impacted by the economy. The real question is how much will the economy impact Google from here on out and how long will this recession last, said Cowen & Co analyst James Friedland.

If the ad pie keeps shrinking, eventually Google's ad pie will shrink, said Friedland, who has an outperform rating on Google.

While the company ended 2008 with $15.8 billion in cash and short-term securities on its books, investors and analysts are also eager for any updates about how Google plans to use the money.

(Reporting by Alexei Oreskovic, editing by Tiffany Wu, Richard Chang)

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