Google misses Street targets as costs swell

By @ibtimes on

Google Inc fell short of Wall Street's first-quarter profit target as operating expenses surged, driving shares in the world's leading Internet search engine more than 5 percent lower.

Analysts zeroed in on a 54 percent surge in expenses to $2.84 billion that offset a 29 percent jump in net revenue.

The jump in costs reflected a spending spree that included new hires to accelerate product development under co-founder and new Chief Executive Larry Page.

Page, 38, took over the CEO reins this month from Eric Schmidt who had held the job for a decade. He is expected to bolster innovation and cut bureaucracy as Google battles social networking leader Facebook and Apple Inc.

Google plans to hire more than 6,000 people this year, after taking a record 2,000 on board in the quarter and raising salaries by about 10 percent across the board on January 1.

You got expenses growing faster than revenue and some people were caught by surprise by the willingness of the company to spend, said BGC Partners analyst Colin Gillis.

But Larry Page has signaled pretty clearly that he is going to be driving up expenses. If the expenses are targeted and result in future revenue streams, then good for Larry. If not, that results in an undisciplined spending approach.

The company posted net income of $2.3 billion in the first quarter, or $7.04 a share, up from $1.96 billion, or $6.06 a share, in the year-ago period.

Excluding certain items, Google said it earned $8.08 a share, below the average analyst expectation of $8.10 a share.

Google's net revenue rose to $6.54 billion in the first quarter, above the $6.32 billion expected by analysts.

The average cost-per-click for its search ads in the first quarter increased about 8 percent year-over-year and decreased 1 percent from the fourth quarter.

Shares of Google fell nearly 5 percent to $551.34 in after-hours trade.

(Reporting by Alexei Oreskovic; Editing by Richard Chang)

Join the Discussion