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Analysts: Google Overspending?

A spending spree that includes a rapid hiring period has some analysts concerned, yet the search giant is clearly in a growth mode.

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BANGALORE (Reuters) - Analysts flagged Google Inc's aggressive spending and a spike in headcount that led to the search giant missing profit estimates for the first time in two years.

On Thursday, Google reported second-quarter earnings that missed estimates in spite of a 24 percent jump in revenue.

The company, however, said it would keep investing in new businesses to drive long-term growth.

"It is clear that Google is in investment mode in search, mobile and display," Stifel Nicolaus analyst Jordan Rohan wrote in a note to clients.

This growth in spending pressured EBITDA margins, which fell below 60 percent for the first time in six quarters, Rohan said.

Shares of Google were down 4 percent to $474.1 in trading before the bell.

"The key item likely to spook investors this morning was the sharp rise in headcount, opex spending and capital spending -- major investments to driver longer term growth dampening margins," said Susquehanna analyst Marianne Wolk in a note to clients.

J.P. Morgan cut its price target on the stock to $558 from $566, Susquehanna cut its target to $650 from $665 and Kaufman Bros trimmed it to $630 from $640.

Copyright 2010 Reuters. Click for restrictions.






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