Google has to (finally) slow down its hiring

Posted by Jim Stroud

July 20, 2007

Google missed its earnings due to its aggressive hiring and other factors. Interesting…

-Snip-Snip-

Google Inc. showed the price for its heavy spending to keep up with breakneck growth.

The Mountain View, Calif., Internet giant’s second-quarter profit fell short of expectations as staff expenses and other costs weighed on the bottom line. Expenses have rarely been a major concern for investors amid surges in Google’s sales. But with revenue-growth rates now slowing, the company’s aggressive spending caught some analysts off guard.

Google posted a 58% increase in revenue to $3.87 billion, driven by strength in its core Web-search and online-advertising business.

But “we overspent against our own plan in the area of head count,” Chief Executive Eric Schmidt said in a call with analysts. Mr. Schmidt said the overspending was related to the company hiring faster than planned and a change in how it accounts for an employee-bonus program that increased expenses during the quarter.

Google added 1,548 employees during the second quarter to end at 13,786, up 13% from the first quarter. The staff-growth rate was the slowest since 2004. Mr. Schmidt said it wasn’t a mistake to hire faster than planned because of the high quality of the employees added but said that the company would monitor that area more closely in the future.

“The costs were much higher than expected,” said Marianne Wolk, an analyst at Susquehanna Financial Group, which makes a market in Google shares. “That’s why they missed the higher end of earnings forecasts.”

Excluding certain stock-based compensation and other factors, Google earned $3.56 a share. That was less than a Wall Street average forecast of $3.59 on that basis, according to Thomson Financial.

Read: Google Pays Price for Spending to Spur Growth