Google is helping the US economy and hurting its stock. The company is hiring so many employees to work on projects outside its thriving search advertising business that its expenses are growing much faster than its revenue.
The strategy came into sharper focus in Google Inc’s first-quarter earnings report released on Thursday. Higher costs spooked investors who are already nervous about a new CEO who detests Wall Street’s fixation on short-term results.
Google has committed to hiring at least 6,200 workers this year, a 25 percent increase and the most in its 13-year history. It added more than 1,900 people in the first quarter, a pace that would translate to more than 7,600 for the year.
The push coincides with Google co-founder Larry Page’s return to his original job as CEO. Page, who ended Eric Schmidt’s decade-long tenure as CEO after the first quarter ended, has indicated he plans to keep investing in opportunities that may take years to pay off, even if that drags down results in the near term.
Page, known for his aloofness, made a few tame remarks on Google’s earnings conference call on Thursday. He then turned things over to Google chief financial officer Patrick Pichette, who has been steering the presentations for the past year.
“I’m very excited about Google and our momentum, and I’m very, very optimistic about our future,” Page said.
He also assured listeners that the management transition announced three months ago is unfolding as the company envisioned. Page is overseeing day-to-day operations, while Schmidt handles government relations and stalks possible acquisition targets in his new role as executive chairman.
Google shares shed US$31.72, or 5.5 percent, to US$546.79 in extended trading on Thursday after the release of the results. At that price, the stock has now fallen by about 13 percent since the announcement that Schmidt would replace Page.
The company earned US$2.3 billion, or US$7.04 per share, in the period ending last month. That was an 18 percent increase from nearly US$2 billion, or US$6.06 per share, last year.
If not for the cost of stock-based employee rewards, Google said it would have earned US$8.08 per share. That was below the average estimate of US$8.11 per share among analysts surveyed by FactSet.
Revenue reached nearly US$8.6 billion, a 27 percent increase from last year.
After subtracting the commissions paid to ad partners, Google’s revenue stood at US$6.54 billion. That figure topped the average analyst estimate of US$6.33 billion, according to FactSet.
However, those numbers were overshadowed by higher expenses. Excluding the ad commissions and employee stock compensation, expenses rose 44 percent from last year to US$3.7 billion.
Labor costs appeared to be the biggest factor. The company gave all its workers a 10 percent raise at the beginning of the year and then went on a hiring splurge.
More than half of the new staff is working on products and services to supplement the search advertising network.
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