Thriftier Google may rein in spending on ‘ moon shots’

After years of big spending on risky projects that CEO Larry Page proudly hails as “moon shots,” Google may be launching into a new orbit of financial discipline.

Investor hopes for a more austere Google are largely tied to the arrival of a new chief financial officer, Ruth Porat. She joined Google in late May, about two- thirds of the way through the Internet company’s second quarter.

Thursday’s release of Google’s report covering that period indicated Porat already may be shaking things up.

Google earned $ 6.99 US per share — topping the average estimate of $ 6.70 per share among analysts surveyed by FactSet.

The pleasant surprise ended a streak of six consecutive quarters in which Google’s earnings missed the analyst estimates that steer investors’ perceptions about publicly held companies. Investors welcomed the change as Google’s stock gained $ 43.90, or seven per cent, to $ 645.68 in extended trading after the numbers came out.

“It’s like, ‘ Wow, look Ruth is already doing her thing,’” said BGC Financial analyst Colin Gillis.

Google could have been making more money all along if the growth in its expenses hadn’t consistently been rising at a faster pace than its revenue, Gillis said.

The company’s rising costs have been driven primarily by a hiring spree and its commitment to “moon shots” that have little or nothing to do with its main business of Internet search and advertising. The list of far- flung projects include self- driving cars, Internet- beaming balloons, medical research and a recently launched initiative to change the way cities operate.

Google’s operating expenses climbed 13 per cent from last year in the second quarter, slightly eclipsing an 11 per cent increase in the company’s revenue to $ 17.7 billion.

Porat signalled that may change in future quarters in prepared remarks accompanying the earnings announcement. While Google will continue to explore promising opportunities, Porat pledged to do so “with great care regarding resource allocation.”

Porat had impressed Wall Street with her budget management while holding the same job at investment bank Morgan Stanley for five years.

The expansion into new areas has come as Google faces more competitive threats from other big Internet companies such as Facebook and Amazon. com, while mobile applications make it easier for people to find what they need in other places besides Google’s search engine.

The prices for Google’s digital advertising have been declining since late 2011, partly because marketers won’t pay as much for commercial messages shown on the smaller screens of smartphones instead of personal computers.

The company’s rising costs have been driven primarily by a hiring spree and its commitment to “moon shots” that have little or nothing to do with its main business of Internet search and advertising.