Did Larry Page Screw Up Google's Quarter?

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Google (Nasdaq: GOOG  ) had a rough week. Shares of the search king closed down more than 8% on Friday, mostly because of a minuscule first-quarter earnings shortfall reported the night before. Analysts were expecting $8.13 in adjusted earnings per share; Google delivered $8.08 a share.

My friend and Motley Fool Rule Breakers colleague Rick Munarriz has all the details of the quarter. Go ahead and read his take and then come back. Don't worry; I'll wait.

Notice the higher expenses? New CEO Larry Page authorized a 55% increase in research and development, sales and marketing, and administrative expenses during the quarter. Revenue rose by only 27% over the same period. Page and his team are investing in social technology to take on Facebook.

Over at TheStreet.com, Scott Moritz writes as if this is a problem for investors to get worried about. "With previous chief Eric Schmidt, there was a comfort that shareholders' interests were a priority," Moritz wrote. "With Page, an engineer and product champion, the shareholder may have to take a back seat."

Really? I'm not so sure. Facebook is growing fast (and profitably) precisely because Google has failed to figure out social search. Page aims to change that. He's tied employee bonuses to success with social efforts. He's backed projects for adding social relevance to search results, including the +1 social search tool and rumored "Circles" network. And he's boosting R&D to develop similar offerings. 

At the same time, he appears unwilling to cut costs for fighting off Microsoft and Yahoo!, both of which are going after The Big G's core Web search business. Page has good reason to hold firm. New data from the Interactive Advertising Bureau shows that overall Internet advertising grew 15% to $26 billion in 2010. Search ads accounted for 46% of revenue.

So even though I can appreciate that change creates risk, shouldn't shareholders be thrilled that Google is investing to win in its biggest markets? You tell us. Please vote in the poll below and then leave a comment to let us know whether you'd buy shares of Google at current prices.

You can also rate Google in Motley Fool CAPS and keep tabs on the company by adding the stock to your watchlist for free, personalized stock tracking.

Google and Microsoft are Motley Fool Inside Value picks. Google is also a Motley Fool Rule Breakers recommendation. Yahoo! is a Motley Fool Global Gains pick. Motley Fool Options has recommended that members create a diagonal call position in Microsoft. Motley Fool Alpha LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Google, Microsoft, and Yahoo! and is also on Twitter as @TheMotleyFool. Its disclosure policy always admits its mistakes.


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