Google's 37% profit increase not enough for investors

Google Inc.'s first-quarter profit jumped 37% and topped analysts' estimates, but it still wasn't enough for Wall Street.

Shares of the Internet giant slumped nearly $29, or about 5%, in after-hours trading, after having climbed to $595.30 before the earnings were announced Thursday.

"They didn't beat the 'wow' number," said Colin Gillis, an analyst with BGC Financial.

Jefferies & Co. analyst Youssef Squali said Google delivered a solid quarter, signaling that consumer spending and online advertising continue to rebound. But it was not enough to sustain the stock's momentum.

"Things are better but things are not great. This is a company that is used to growing substantially faster," Squali said.

Net income rose to $1.96 billion, or $6.06 a share, from $1.42 billion, or $4.49, a year earlier.

Excluding costs such as stock-based compensation, profit was $6.76 a share. Some analysts' estimates were as high as $6.91.

The quarterly earnings report comes on the heels of one of the most action-packed three months in the company's history. It faced off against the Chinese government over censorship of its search engine, raising questions about Google's ability to grow in the world's largest Internet market.

Tensions escalated with former ally Apple Inc. as the two companies competed head to head in the mobile advertising market. Google introduced its own mobile phone, the Nexus One, but the device reportedly is not selling as well as expected.

And regulators in the United States and Europe increased their scrutiny of Google, with the Federal Trade Commission hinting it may challenge Google's proposed $750-million acquisition of mobile advertising firm AdMob Inc.

Although the growth of its core business -- search advertising -- was strong, it was not enough to assuage investors who remain concerned that Google is a one-product company that has yet to make substantial headway in display and mobile advertising.

In a conference call with analysts, Chief Operating Officer Patrick Pichette said Google was gearing up to drive new growth and push more aggressively into display and mobile ads.

Google, based in Mountain View, Calif., has hired 800 employees and made six acquisitions this year.

It plans to hire 2,000 people this year and is spending more on sales and marketing. That kind of cash outflow can make investors uneasy because it can crimp profit margins, analysts said.

jessica.guynn@latimes.com

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