Google declines after biggest increase in costs since 2008

Google fell as much as 5.7 per cent in German trading after a first-quarter hiring binge and increased marketing led to the biggest jump in operating expenses in three years.

First-quarter operating costs rose 54 per cent, outstripping a sales gain of 29 per cent to $6.54 billion, the Mountain View, California-based company said yesterday. Profit excluding some items was $8.08 a share, below the average analyst estimate of $8.12 compiled by Bloomberg.

Larry Page, who replaced Eric Schmidt as chief executive officer last week, is ramping up spending to pursue new growth opportunities, including mobile and video advertising. Google boosted hiring by more than 1,900 people during the quarter, part of a plan to add at least 6,000 this year. At the same time, he’s grappling with growing regulatory scrutiny of the company’s market-leading internet-search business.

“The concern is that the expense discipline may be leaving as Eric Schmidt steps away,” said Clayton Moran, a Boca Raton, Florida-based analyst at Benchmark Co, who recommends buying the stock and doesn’t own it. “The company through the recession had shown significant financial discipline.”

Google fell as much as 5.6 per cent to $546.01 in late US trading after the earnings report. The shares, down 2.6 per cent this year, closed at $578.51 earlier on the Nasdaq Stock Market. In German trading, the stock dropped as much as 5.7 per cent on Friday and was down 5 per cent as of 9.08 am in Frankfurt.

SALES GROWTH
The $6.54 billion in sales — a figure that excludes revenue passed on to partner sites — topped the $6.32 billion average of estimates. First-quarter net income climbed 18 per cent to $2.3 billion, or $7.04 a share, from $1.96 billion, or $6.06, a year earlier.

“The investors we have actually understand that we are building businesses for the long term,” Patrick Pichette, chief financial officer, said in an interview yesterday. “They also want growth, which we delivered this quarter.”