Google Investors Say They Wanted More From Page on Analyst Call

Google's Larry Page
Larry Page, co-founder of Google Inc., listens as Bill Clinton, former U.S. President, speaks during the closing of the Clinton Global Initiative in New York in 2007. Photographer: Daniel Acker/Bloomberg

Google Inc. investors say they got scant reassurance from new Chief Executive Officer Larry Page during this week’s earnings conference call, following a surge in operating expenses.

Page spoke for less than 2 minutes and 30 seconds near the beginning of the April 14 call with analysts, which lasted about an hour. Page, who wasn’t originally slated to speak on the call, said he was pleased with first-quarter results and that there was strong momentum at the company.

“The thing that has spooked everybody is the combination of the expense numbers being higher than people anticipated -- and this kind of odd, slightly disconnected-sounding, ‘Hey, everything is great,’” said Bob Rice, general managing partner at New York-based Tangent Capital Partners LLC, which owns Google shares. “The whole way it was staged was bizarre.”

Page, facing rising competition from rivals Apple Inc. and Facebook Inc., is ramping up spending on hiring and marketing. That’s pushing up operating costs. First-quarter profit excluding some items was $8.08 a share, below the $8.12 average of analysts’ estimates compiled by Bloomberg.

Google declined $47.81, or 8.3 percent, to $530.70 yesterday in Nasdaq Stock Market trading, the biggest drop since December 2008. The shares have fallen 11 percent this year.

Aaron Zamost, a spokesman for Mountain View, California-based Google, declined to comment.

More Clarity Needed?

While it’s too early to tell how well Page is performing, he could have helped investors with a broader discussion of the company’s perspective on spending, said Ryan Jacob, chief investment officer at Los Angeles-based Jacob Funds.

“Wall Street hates uncertainty,” said Jacob, whose funds include Google holdings. “A lot of the expenditures they’re making are somewhat discretionary to whatever management’s strategies and goals are. To elaborate on that from the CEO’s position I think would have given a bit more clarity to people.”

Operating costs during the first quarter rose 54 percent, the biggest jump in three years, partly because of a hiring spree. The company had 26,316 employees at the end of the quarter, up 7.9 percent from the end of December. Research and development costs rose 50 percent from a year earlier, while sales and marketing climbed 69 percent.

‘Very Excited’

During the call with analysts, Page emphasized that Google had sales growth of 27 percent last quarter and that there have been improvements in its main search business.

“I’m very excited about Google and our momentum,” said Page, 38. “I’m very, very optimistic about our future.”

Even before Page took over last week, Google was moving away from having its CEO on quarterly calls. The company said in the first quarter of last year that then CEO Eric Schmidt would stop joining calls. He did speak on a call in January when the company announced he would become executive chairman and Page would replace him as chief.

In his first week on the job, Page promoted seven of his managers to senior positions, including Andy Rubin, who heads up mobile efforts, and Vic Gundotra, who is in charge of social initiatives, according to a person briefed on the changes. The executives will report directly to Page, the person said.

Page’s changes are designed to streamline engineering and product development, placing a single manager in charge of each product group, said Chris Gaither, a company spokesman. Page said in January that the company needs to stay nimble even as it becomes larger.

While Page needs to prove himself, he has the opportunity to be a strong CEO in the tradition of Microsoft Corp.’s Bill Gates and Apple’s Steve Jobs, said Morris Mark, president of Mark Asset Management Corp. in New York.

“I do like some of the things he’s done so far -- the reorganization in the key divisions, freeing those divisions to have room to maneuver, to create, to innovate,” Mark said in a televised interview on “Bloomberg West.”

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