– Google Inc’s stunning 54 percent spending surge spooked investors already worried its new CEO may take his eye off the bottom line to chase revenue growth, driving its shares more than 5 percent lower.
Investors zeroed in on the stunning surge in expenses to $2.84 billion, which dwarfed a 29 percent jump in net revenue and reflected a record hiring spree, company-wide salary raises, and splurging on everything from marketing to technology.
Analysts now expect co-founder and new Chief Executive Larry Page to keep spending on new products to spearhead an aggressive push into areas such as social networking and mobile businesses. Google executives said on Thursday the dramatically stepped-up spending was needed to galvanize growth.
Page, 38, a media-averse technology wiz who took over as CEO this month from decade-long veteran Eric Schmidt, came on a conference call with analysts for just a few minutes, disappointing some eager to hear his plans to jump-start growth and innovation.
Page expressed his optimism in his company’s future, then departed, leaving a trail of questions in his wake that analysts directed at the other executives.
“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.”
Page 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.
“The discipline of the company has not changed; we’re just really bullish on our prospects,” CFO Patrick Pichette told analysts. “I can tell you every element of the company is scrubbed and scrutinized.”
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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 to advertisers for its search ads in the first quarter grew about 8 percent year-over-year and decreased 1 percent from the fourth quarter.