Google share price falls after operational costs outstrip sales gain

Google has reported a sharp rise in first-quarter earnings with co-founder Larry Page back as chief executive, but investors were unimpressed

Google has reported a sharp rise in first-quarter earnings with co-founder Larry Page back as chief executive, but investors were unimpressed by an even bigger spike in operational costs.

The internet firm reported $6.54bn (£3.99bn) in net revenue in the first quarter, up 29% from the same period a year ago, but operating costs rose 54% and profit of $8.08 per share was below the average estimate of $8.12 compiled by Bloomberg.

Google, which has about a 65% share of the US search engine market and about 90% in Europe, said it would continue "to invest for the long term".

Patrick Pichette, Google chief finance officer, said: the results demonstrated the value of search and search ads to users and customers, as well as the "extraordinary" potential of display and mobile advertising.

But Google's share price fell by as much as 5.6% on the news in extended trading as investors reacted to the biggest jump in operating expenses in three years following an increase in staff and marketing expenses, with 1,900 new hires in the first quarter.

Page, who took over from Eric Schmidt as chief executive officer earlier this month, is increasing spending to pursue new growth opportunities, including mobile and video advertising, and plans to hire at least 6,000 people in 2011.

Some analysts say investors are concerned that with Schmidt's departure, Google will be less disciplined in its spending, while others say Page's strategy indicates that he is not afraid of spending and is willing to take a short-term hit to concentrate on new products and technology.

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