Benchmark Capital has raised profit estimate of Google Inc. (NASDAQ: GOOG) as channel checks reveal strong search advertising, which is driving double-digit cost-per-click (CPC) growth.

The brokerage raised its first quarter 2011 earnings estimate to $8.17 a share from $7.79 a share and 2011 profit forecast to $34.77 a share from $33.43 a share.

Wall Street expects Google to earn $8.12 a share for the first quarter and $34.52 a share for 2011, according to analysts polled by Thomson Reuters.

The US search market is growing about 12 percent year-over-year, driven mainly by increased CPC -- one of the online payment models by which advertisers pays for each click through made on their advertisement.

Google's CPC is up, partially due to non-branded keywords and the introduction of Instant in the third quarter of 2010.

As search advertisers increase budgets, the added money is flowing to non-branded generic terms that typically have relatively high CPC. Instant is driving more traffic to paid search and the generic, category-defining keywords, analyst Clayton Moran wrote in a note to clients.

The Instant drop-down menu reduces page space available for organic results focusing user attention and clicks on paid links.

Meanwhile, Google's Feb. 24 natural search algorithm changes, dubbed Panda, appear positive for advertisers and Google. Traffic quality has improved resulting in higher revenue-per-click (RPC) for advertisers. This could stem from a decline in traffic from content farms.

According to Sistrix, the most negatively impacted websites experienced traffic declines of 43 percent.

We believe AdSense network efficiency has improved, with early indications showing RPC for advertisers up 5 percent. As a result, advertisers may increase ad budgets to capture the increased volume from better performing AdSense, the analyst noted.

Revenue per click is defined as the ratio of the search revenue to the number of clicks.

In addition, Google's international search is growing about 15 percent year-over-year, with notable progress in Europe. With Google having 90 percent or greater European market share, it stands to benefit from surprising strength.

However, the Euro is still a hindrance year-over-year with Google reporting on a one-month currency lag. But the Euro drag lessened in the first quarter of 2011 from the second half of 2010.

The remainder of Google's projected 23 percent gross revenue growth in the first quarter of 2011 comes from Ad Exchange and Youtube, which are gaining market share. Do-Not-Track potentially poses a threat to Ad Exchange's momentum.

We expect 2011 net revenue and adjusted EPS growth of 21% and 17%. Our estimates are in-line with street consensus, Moran said.

Moran also expressed concerns over expense growth, and the drag on earnings from the inefficient hoarding of cash. The recent spike in expenses was likely related to the appointment of new CEO Larry Page.

With Google competing on several fronts against deep-pocketed competitors, we fear Page will be less financially disciplined than his predecessor, the analyst said.

However, Moran said that with strong operating momentum and a reasonable valuation, he believes Google's stock is undervalued, and should trade higher.

Moran has a buy rating and $700 price target on Google stock.

Shares of Google closed Wednesday's regular trading session at $557.10 on Nasdaq.