Google's 54-% jump in spending dwarfs 29-% revenue growth

A 54-per cent jump in Google Inc's operating costs in the first quarter of 2011 dwarfed the 29-per cent growth in net revenues, resulting in shares of the California-based internet giant fall by five per cent on Thursday.

Google reported Q1 earnings of $8.08 a share, as against $6.76 for the same period a year ago. Sales shot up to $6.5 billion ($5.07 billion in Q1 of 2010), but operating costs surged to $2.84 billion, as the company went on a hiring spree, taking in 2,000 new employees during the first three months of the year.

The internet major, which also hiked salaries by 10 per cent across the board, plans to add another 6,000 employees this year.

''We have had a tremendous quarter,'' Larry Page, the co-founder and new CEO, said during a brief earnings call. ''It shows the strengths of our business and the tremendous improvements to be had. I'm managing day-to-day operations and am really excited about progress. I'm hitting the ground running.''

But the markets were spooked by the huge increase in spending, reflecting worries that the new CEO would continue spending on new products. Page replaced Eric Schmidt, who was CEO for a decade, in April. Shares of the company have fallen by nine per cent since it announced in January that Page would replace Schmidt.

Page praised Schmidt – who as executive chairman will focus on external affairs and government relations – and Jon Rosenberg, another senior executive, who has quit the company.

According to Patrick Pichette, chief financial officer, the results demonstrate the value of search and search ads to its users and customers, besides the extraordinary potential of areas such a display and mobile. ''The discipline of the company has not changed; we're just really bullish on our prospects, Pichette assured analysts. ''I can tell you every element of the company (expenses from real estate to food) is scrubbed and scrutinised.''

Google's reorganisation will affect all its 'core pillars' said Pichette. The company will continue to increase spending pursue growth opportunities in areas including mobile and video advertising. Google is also keen to catch up with social media major Facebook.