Friday, April 15, 2011

Google's (GOOG) Spending Increases Concerns Over New CEO Page

Unfortunately for Google (NASDAQ:GOOG), what would have been considered an extraordinary quarter under normal conditions, with net revenue increasing by 29 percent, it was overshadowed by the enormous surge in spending of 54 percent.

With new CEO Larry Page coming on board and concerns over his propensity to pursue dubious ideas, at best, this reinforces to many concerns over being mature enough and capable enough to profitably run Google.

While it's good to have a long-term outlook on a company, there are far too many generalizations at this time from Google management to generate concerns over whether or not they really have a specific plan and strategy in place other than shrinking the bureaucracy at the company and some undefined ideas from the incoming "visionary."

It reminds shareholders and investors of why Eric Schmidt had been brought on to run the company in the first place, which was to put an adult in charge.

Other than plans to hire over 6,000 new employees in 2011 and boosting the salaries of existing workers by close to 10 percent, there hasn't much concrete that the company has announced they're going to plow the money into.

As to clarity, the comment by Chief Financial Officer Patrick Pichette saying, "The discipline of the company has not changed; we're just really bullish on our prospects. I can tell you every element of the company (expenses from real estate to food) is scrubbed and scrutinized," means almost nothing.

They're bullish so they're spending, and they've allegedly thoroughly went over part of the company as far as expenses go.

To go over the expenses of any company is standard and responsible business practice. To announce it is largely irrelevant and meaningless. And the bullish comment is something every single CEO or CFO of a company would say.

As to specifics, there aren't any, and that, more than anything, is disconcerting to shareholders. To say the spending is for the purpose of pursuing multibillion business opportunities, as Google executives have asserted, again, says absolutely nothing.

There appears to be the increasing suspicion that Page isn't much interested in managing margins and earnings, but in expanding into new business areas and topline growth.

Net income for the quarter came in at $2.3 billion, or $7.04 a share. Excluding items, earnings were $8.08 a share, missing analysts expectations of $8.10 a share.

Page and Google now have a huge credibility problem, and the company could begin to be punished significantly if more details aren't released soon and what appears to be a cloud of secrecy surrounds the company.

Only performance will change this, and shareholders will be the final judges as to whether or not they have the patience to wait for Page, or if they feel they can trust him at all.

Google closed Thursday at $578.51, gaining $2.23, or 0.39 percent. After hours the company plunged $31.91 to $546.60, down 5.52 percent.

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