Google's Page Worries Wall Street as Spending Rises

Google's first quarter operating expenses and CEO Larry Page's taciturn appearance on the earnings call worried analysts covering the search engine.

Google executives reported solid earnings and a 17 percent year-over-year profit for the first quarter and painted a rosy picture for the future of search, mobile and display advertising April 14.

That wasn't enough to satisfy financial analysts who blanched at the company's operating expenses of $2.84 billion, firmly $1 billion more than the search giant reported for Q1 2010. The increased costs were partially due to the almost 2,000 new workers it hired during the quarter.

Shares of Google fell 5 percent in after-hours trading, dipped 6.85 percent in Friday morning trading, and slid 7.5 percent by 3 p.m. EST to $534.64.

It wasn't just about the finances. Analysts expected new CEO Larry Page to offer guidance about the way he would run the company. What they got for their time from Page was a vague two-minute bulletin about how Google is going great and the new management structure he put in place is working exactly as planned.

"I'm managing the day-to-day operations of Google as the CEO, working very closely with my team, and I'm really excited about the progress we've had there. I think we really hit the ground running."

Eric Jackson, founder and managing member of Ironfire Capital LLC, wrote in a column for that Page's "performance last night was abysmal and simply fed into the worst fears investors have about what his leadership will mean for Google."

Indeed, Page didn't say what Google was working to address. Analysts wasted little time guessing how Google's investment strategy will play out.

Gleacher and Co.'s Yun Kim said Google's recent efforts promoting non-search businesses, such as Chrome and Android, and its efforts to attract smaller and local advertisers are continuing to weigh heavily on its overall cost structure.

"While Street EPS estimates are likely to come down and reflect more realistic operating expenses going forward, we are somewhat wary of the company's continued investment in non-search business, which could accelerate under the new CEO, and also given its recent acceleration in its core search business," Kim wrote April 15.