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Google Earnings Burdened By Costs

Strong results for the search company fell shy of investor expectations as operating expenses grew.

Google, the dominant Internet search company, on Thursday reported profit below analysts' estimates, sending its shares down in after-hours trading.

The company did well enough, with revenues of $8.58 billion during the first quarter of the year, but 27% year-over-year revenue growth didn't satisfy investor expectations.

Financial analysts anticipated earnings per share around $8.12, according to Bloomberg, and Google fell just shy of that at $8.08. The company saw 18% growth in the number of paid clicks year-over-year and saw revenue per click increase by 8%.

Google CFO Patrick Pichette characterized the results as a "great quarter" and said, "It's clear that our past investments have been crucial to our success today--which is why we continue to invest for the long term."

It's the extent of that investment that has investors wondering. Google's capital expenditures reached $890 million, owing to buildings bought in Dublin, Ireland, and Paris, France. And its operational expenses continue to climb: The company's headcount reached 26,316 full-time employees at the end of March, up from 24,400 at the end of December, 2010. In addition, Google is paying its employees better than it used to, having instituted a 10% salary increase across the board.

What's more, Google is likely to continuing hiring at close to this pace for the next two or three quarters: The company said in January that it anticipated hiring 6000 more employees this year. The company believes a more sizable, better paid workforce is necessary to compete with Facebook, among others.

Google co-founder Larry Page, who became CEO in early April, only joined the company's conference call for investors briefly. He expressed optimism about Google's future and noted his recent management structure changes.

Beyond respectable revenue, the good news for Google is that Android activations have now reached 350,000 per day and Chrome now has about 120 million users. This growing base of mobile and Internet customers is likely to insulate the company from the risk it often cites to regulators, that "competition is only a click away."

For those who have gone Google, parting ways is likely to involve more than a click. It will require overcoming old habits and making some effort to escape Google's gravity.

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