Rising Costs Erode Google Profits

Fast-rising expenses eroded Google's first-quarter profits, disappointing investors and sending Google shares lower in after-hours trading. The company said revenue for the quarter rose 19% to $15.4 billion from $13 billion a year earlier, excluding the Motorola Mobility business Google plans to sell to China's Lenovo Group. But expenses grew faster -- at 23%. As a result, Google's net income increased 3% to $3.65 billion, or $5.33 a share, from $3.53 billion, or $5.24 a share. Brian Wieser, an analyst at Pivotal Research Group, said Google's profit margins have declined as the company expands into more businesses. Newer businesses like online-video service YouTube, as well as display advertising, are less profitable than the company's original search-advertising business, Wieser said. Operating expenses rose in part because of one-time research-and-development costs related to Google's $3.2 billion purchase of home-automation company Nest Labs. Research-and-development expense increased 31% from a year earlier to $2.1 billion. Google also is increasing investments in data centers and other infrastructure to beef up its computing capacity. Capital spending nearly doubled from a year earlier, to $2.3 billion from $1.2 billion.