Google spending spree leaves investors stunned
Google’s costs surged by a stunning 54% in the first three months of the year, worrying investors already concerned whether the company’s new CEO might take his eye off the bottom line to chase new business.
Shares in Google slid more than 5% as investors focused on ballooning costs of $2.84 billion. This dwarfed a 29% jump in net revenue and reflected a record hiring spree, company-wide salary hikes and splurging on everything from marketing to technology.
Analysts expect co-founder and new chief executive Larry Page to continue spending on new products to spearhead a push into areas such as social networking and mobile businesses.
You got expenses growing faster than revenue and some people were caught by surprise by the willingness of the company to spend
Page, a media-averse technology visionary who recently took over from veteran Eric Schmidt, spoke for only a few minutes as the results were announced, disappointing investors eager to hear his plans to jump-start growth.
Page is expected to bolster innovation and cut bureaucracy as Google battles social networking leader Facebook, Microsoft and Apple, but his brief remarks did little to reassure Wall Street about the management change.
“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 signalled 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.”
Google plans to hire more than 6,000 people this year, after taking a record 2,000 on board during the last three months and raising salaries by about 10% across the company.
The focus on Google’s spending overshadowed strong first quarter net revenue growth of 29% year-over-year to $6.54 billion.
Google said growth was boosted by an 18% jump in the paid clicks on its search ads, new types of retail ads featuring product images and momentum in mobile ads and video ads on YouTube.