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Paging Larry: Wall Street Freaks Out After Google Earnings

Friday, April 15th, 2011

Wall Street has had a little freakout out over Google’s results. Not its revenues—Google had a 27 percent increase, quite impressive for a company its size. The problem, in lucre-geek-speak, was opex: operating expenses. In addition to taking in and making a lot of money (well over $2 billion), Google spent a lot of money.

A lot of the spending was due to Google’s aggressive—some say desperate—employee compensation and hiring strategy. Keeping Googlers on board is expensive when so many are tempted to go to places like Facebook and Twitter, or start their own companies. Google bumped up everyone’s salaries, from chefs to Android-ers, ten percent. Google also is smack in the middle of a hiring binge, having brought in about a third of the 6000 Nooglers it plans to hire this year. And certain employees who apparently got offers from competitors reaped huge stock deals that figured in yesterday’s high operating expenses.

In Wall Street World, not hitting every single numerical mark is a sign to panic. So Google stock took a hit—over eight percent. Woah.

But Google had warned investors from the beginning that it would not play the quarterly expectations game, regarding as noise the fluctuations from Wall Street reactions to earnings. To Google, it’s all about the long term, and in this case the company clearly figured that Google would be better positioned if it kept its talent, even if it had to pay a king’s ransom. Long term benefits are also the justification for another big expense: fortifying Google’s already-impressive infrastructure.

The person who first outlined that warning about blowing off short-term results, by the way, was Larry Page, the main author of the essay that led off Google’s prospectus when the company went public. Back then he was eloquent in explaining why Google would look towards the horizon, even if was subject to consequences like the Wall Street spanking that following its earnings announcement yesterday. So it was disappointing that Page’s appearance on the earnings call yesterday was merely a cameo appearance—more like Alfred Hitchcock quickly spotted in a scene of his movie than a meaty, Michael Shannon-esque supporting role. After giving a few upbeat, unenlightening comments, he ducked out. So it was up to Patrick Pichette, Google’s CFO, to answer the analyst who asked the following question: What does Larry think?

Too bad, the CEO couldn’t answer for himself. I suspect that Larry would have made a passionate, compelling case for Google’s course of action. It’s not like he isn’t thinking about it.

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