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Google Aims War Chest at Facebook

Updated Google spending story with recent stock price.

NEW YORK ( TheStreet) -- Google (GOOG - Get Report) co-founder and new chief, Larry Page, had few words -- 389 to be exact -- for Wall Street during the company's first-quarter earnings call, but his spending strategy spoke volumes.

The aggressive 8% hiring binge and 57% year-over-year increase in operating expenses in the most recent quarter signaled a sudden and aggressive turn for Google. It also raises the question of whether the company should continue to mine its core search business or dedicate its efforts on finding new growth elsewhere.

Jarred by the move, investors sent the stock down more than 7% on the understanding that Google has stopped managing the business purely for profit. Instead, Page's plan calls for a bold spending attack on Facebook and an urgent expansion into social networking along with mobile and display ads.

The move confirms fears that some investors had about the leadership change. With previous chief Eric Schmidt, there was a comfort that shareholders' interest were a priority. With Page, an engineer and product champion, the shareholder may have to take a back seat.

But some argue that the Facebook challenge is exactly what Google needs to reinvigorate the company.

"These investments are justified given the scale of the company's emerging opportunities," Think Equity's Aaron Kessler wrote in a note Friday.

One big area of expense was Google's payroll.

In response to Facebook's aggressive hiring and the enticement of pre-IPO stock options, Google gave out a 10% cash bonus to all employees last quarter. In addition, Google has offered so-called multiplier incentives to employees who "integrate relationships, sharing and identity across our products," according to a memo published by Business Insider.

In other words, get employees' eyes on the social prize.

But for now, investors can't stop gawking at the price tag on this plan. Google shares were down $44.27, or 7.5%, to $534.24 afternoon trading Friday.

--Written by Scott Moritz in New York.



>To contact this writer, click here: Scott Moritz, or email: scott.moritz@thestreet.com.

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