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Google announced yesterday reported revenues of $8.58 billion for Q1, a 27% year on year growth from Q1 in 2010. However, they missed their estimated profit after investing in hiring, marketing and much more.
Earnings were slightly lower than expected in Q1, despite the rise in revenue and a 15% increase in net income to $2.3 billion. It is believed the increased operating costs and the drop in shares (almost 5%) has unsettled investors.
Investing in new staff
Since Larry Page’s arrival as CEO [See: Google’s Growth Overshadowed by Management Reshuffle] he has vowed to invest in research and staff to challenge technological rivals Apple and social media rivals Facebook. Part of the investment in staff has come from a cash bonus and a pay rise, which has seen all non-executive staff gain a $1000 cash bonus and a 10% pay rise as of January 1st 2011. With 20,000 employees, the cash bonus has cost the Search Engine giant $20 million, however the 10% rise will cost the company an estimated $1 billion extra a year.
In addition the report shows they have raised the number of employees from 24,400 (full time) in 31st December 2010 to 26,316 in March 31st, 2011. They announced they would be adding an extra 6,000 employees this year in an attempt to beef up operations. It would appear the hunt for talent in Silicon Valley is high on their agenda as they look to research into new areas.
Investing in new areas
As a result of these heavy investments, Google’s expenses have jumped from $1.84 billion (27% of revenues) in Q1 of 2010 to $2.84 billion (33% of revenues) in Q1 of 2011. It is expected the new CEO wants to focus on areas of growth, instead of increasing profit margins in the short term. These areas of growth include mobile services, display advertising and social networking.
Moreover, Google have found themselves spending big in new areas of search too, the recent acquisition of ITA being a notable example [See: Are Google Flying High with the Purchase of ITA?].
Charitable efforts and small investments throughout the world have also been on the increase, which all contribute to the increasing overheads. For instance, we recently reported on Google’s toe dipping into Solar Energy [See: Are Google Trying to Appease the Germans?], but it appears this was just the start as more investments into clean energy have emerged.
So where do we go from here? Well as mentioned, it appears Larry Page isn’t concerned about short term profit margins. The work he has started since becoming CEO looks to be concentrating on diversifying Google’s services, and clearly this has come at a cost, for the time being at least.