Instant View: Google misses Street target as costs climb

LOS ANGELES Thu Apr 14, 2011 4:50pm EDT

LOS ANGELES (Reuters) - Google Inc's quarterly earnings missed Wall Street's target by a tad as operating expenses soared, sending its shares 5 percent lower.

Commentary:

KERRY RICE, ANALYST, WEDBUSH SECURITIES

"Google was a little disappointing on the bottom line. It looks like operating margins were below our expectations.

"We were looking for $8.17 on a proforma basis and they came in at $8.08 cents, a little shy on the bottom line and that was reflected on the operating margins."

JASON HELFSTEIN, ANALYST, OPPENHEIMER & CO

"Same story as last quarter -- modestly better revenue, weaker margins, beat the bottom line on taxes, but the key here is margins are weaker and as a result there's still a question about the company's long-term spending intentions.

"I would think (Larry) would manage different than Eric. I don't think his focus is going to be on managing to margins. I think his focus is going to be on managing to topline growth and new business areas."

CLAYTON MORAN, ANALYST, BENCHMARK COMPANY ANALYST

"There was strong growth but unfortunately strong growth in costs as well as revenues. Operating costs were up almost 60 pct year over year and 14 percent sequentially. That is what is spooking the street.

"This is from hiring people, giving people raises, investments in new products, new initiatives. This is going to be across the board, given the magnitude of the costs.

"The core business continues to perform well but investors are going to be concerned that the expense discipline is departing with Eric Schmidt.

"Those two things net out to a bottom line I would consider not to be a miss. I wouldn't call this disappointing, but I'm not surprised by the knee-jerk reaction in the after-market."

COLIN GILLIS, ANALYST BGC PARTNERS,

"You got expenses growing faster than revenue and some people were caught by surprise by the willingness of the company to spend. But Larry Page has signaled pretty clearly that he is going to be driving up expenses. They gave a 10 percent raise across-the-board on January 1, and they hired a record 2,000 people."

"If the expenses are targeted and result in future revenue streams, then good for Larry. If not, that results in an undisciplined spending approach."

JORDAN ROHAN, ANALYST, STIFEL NICOLAUS

"Clearly the company is still in growth mode and for Google that means spending too. They're spending on stock compensation, on sales and marketing..., really they've hired 1,900 more people this quarter, which might be a new high. It's Google being Google, This is what they do.

"This plays into investors' insecurities about how Larry Page is going to run the company. We don't really know yet.

"Long term, this doesn't change my view of Google. When they feel good, they spend."

SANDEEP AGGARWAL, ANALYST, CARIS & CO

"They beat on the top line but missed on the bottom line.

"That is because they are hiring a lot of people. And at the same time, their display and mobile businesses are growing fast, but they are lower-profit-margin businesses. So that's hurting the bottom line."

(Reporting by Jim Finkle in Boston, Noel Randewich in San Francisco and Liana Baker in New York)

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