Growing pains knock 5% off Google shares

Shares in the behemoth drop as 'lavish' spending begins to take its toll. And investors aren't impressed...

by Emma Haslett
Last Updated: 15 Apr 2011
It’s a rare company that can post a 20% rise in profits, only to see its share price plummet. Welcome to Google’s world: the company reported that profits for its first quarter had risen to $2.3bn (£1.4bn), while revenue climbed to $6.54bn. But shares in the company fell by nearly 5% in extended trading, as investors showed their disappointment that the company had failed to meet expectations. The source of their discontent? Google’s mammoth expenses bill; costs rose by a whopping 54%, to $2.84bn. Not a sum to be sniffed at – even if it is one of the largest companies on the web…

Admittedly, that money hasn’t exactly been squandered: Google used it to pay for the 2,000-odd new staff it hired during the first three months of the year as part of the ‘biggest hiring year in Google’s history’. 2011 will see a total of 6,000 new staff hired to work in ‘high-growth areas’ like mobile and search advertising (which brings in most of its business), as it seeks to expand even further. Clearly, the company sees it as an investment in its future – but Wall Street was hoping for speedier returns.

That’s going to lead to questions for Larry Page, the man who co-founded the company 13 years ago and took over the role of CEO from Eric Schmidt last week. Page has already admitted that there are ‘tremendous improvements to be had’, particularly when it comes to competing with rivals. One of Page’s first decisions was the decision to tie wages to Google’s performance in social networking. The jury’s out on whether that was wise, considering the business’ track record in the field: Wave and Buzz, its two highest-profile attempts at entering the social networking market to date, have both been flops. So it’s a decision that could lead to some very hungry faces around the Googleplex.

That hasn’t been the only obstacle the company has faced, though. Google was forced to raise its software engineers’ salaries by 10%, after a trickle of talent lost to rival Facebook threatened to become an flood. And competitors seem to be edging into the periphery of the company’s core market, too: Microsoft’s search engine, Bing, for example, may have yet to make much of an impact in the UK, but it’s slowly but steadily gaining market share in the US.

All this is going to come as a bit of a shock for the company which, until very recently, had been able to thumb its nose at larger competitors as it outmanoeuvred them at every opportunity. But that doesn’t seem to have put Page off: he’s full of the sort of buoyancy that characterised Google at its inception. ‘I’m very, very optimistic about our future,’ he gushed today. Fingers crossed…

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