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Google shares decline – caused by massive overhead increase

Google feel 5.6 percent in extended traded yesterday after a first quarter hiring spree, their operating expenses are the highest in three years. First quarter operating costs rose 54 percent, outstripping a sales gain of 29 percent to $6.54 billion.

Larry Page, has recently replaced Eric Schmidt as chief executive officer last week and he is ramping up spending to pursue new growth opportunities, including video and mobile advertising. Google boosted their hiring by more than 1,900 people during the quarter, part of a plan to add at least 6,000 this year.

Clayton Moran, an analyst at Benchmark Co said “The concern is that the expense discipline may be leaving as Eric Schmidt steps away. The company through the recession had shown significant financial discipline.”

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

Google are continuing to invest in areas such as marketing of the Chrome browser, Pichette said in a conference call with analysts. The disaster in Japan has damaged ad sales during the quarter for Google. That impact will carry over into the last period, he said.

Larry Haverty, a portfolio manager at Gamco Investors Inc has 60,000 shares in Google and he said “They have tremendous technology. I’m confident having watched this thing for 37 quarters that these guys one way or the other are smart enough to turn incremental revenue into profit.”

KitGuru says: Spending short term can be wise. Google haven’t made many mistakes so far with investments.

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