Google's Blowout Quarter Makes Investors Sweat

The internet supergiant has left the recession in its dust and is eyeing expansion

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Roaring back in high style after a less-than-stellar year (by Google standards), the Internet's favorite supercompany reports a 23% jump in profits, beating analysts' expectations. Google CEO Eric Schmidt has said the recession's doldrums are a thing of the past as the company gears up for hiring, spending and acquisitions. It has even said it may buy a large company "maybe every year or two."

The burst of good news helps to repair, or at least smooth over, the dings that Google's still-enviable reputation has taken in recent months. Gmail has broken down repeatedly, sending droves of people scurrying to Twitter to complain. The company's avowedly altruistic plan to digitize--and resell--the world's books has come under attack for being a literary monopoly. Last and worst of all, the government's invigorated anti-trust division has been eying Google for its close ties to the leadership of Apple.

What will it mean in the long run? Google's many boosters are excited at the prospect of recovery. But investors are worried that Google's enthusiastic return to spending will negate the cost-cutting the notoriously indulgent company has undergone in the past year.

  • Google's Recovery Means Consumers Are Getting Happier, says Jessica Vascellaro at the Wall Street Journal. "Good results will be a positive sign not just for the Internet sector, but the overall economy. Google's business is global and closely tied to consumer spending...More revenue for Google generally means consumers are clicking on more ads, a sign they are interested in buying more products." She then notes that the real challenge Google faces in maintaining profits is keeping costs low "before the company ramps up hiring and spending again, as it has indicated it is poised to do."
  • Expansion Spells Danger for Rivals, writes Tom Krazit at CNet. "Google is about to go on an investment binge; although, it probably would object to the term "binge." The most likely scenario is that Google plans to buy a few more companies than it has in the past year, open the hiring floodgates to the types of engineers and salespeople that fit within Google culture, and make sure it has the right technology assets to continue to dominate the search landscape. That's not good news for anybody who competes with Google"
  • Still Far Away from the Good Old Days, writes Dealbook at the New York Times. "Google is still a long way off from the double-digit growth it once enjoyed, but analysts believe search advertising, which accounts for the majority of its business, will be quicker to recover from the ad slump than the display ad business that companies like Yahoo and Time Warner's AOL depend on."
  • YouTube Still Has Yet to Perform, suggests Sam Gustin at Daily Finance. "One of the key questions facing the company is how YouTube, Google's giant video site, intends to add to its parent's bottom line."
  • Investors Dislike Mistreatment, Overspending, writes Richard Waters at the Financial Times. The earnings call, he says, "once again reveals the company's lack of sensitivity to the way analysts work, and its over-enthusiasm for using technology to replace human interaction. Rather than take questions from analysts directly, Google has asked Wall Street's finest to submit their questions through a service called Google Moderator, and is only responding to questions that receive the most votes from other analysts...There is no chance for analysts to put executives on the spot directly or - most importantly - ask follow-up questions when answers are less than complete...Hang on to your seats: after the surprisingly effective cost discipline of recent quarters, expenses could be set to soar again."
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