Google Inc. reported a 61 percent increase in its net income for the first three months of the year and announced plans to split its stock 2-for-1 to preserve its leadership's control over the company in the long term.
The online search leader said Thursday that it wants to issue a new class of stock to shareholders, but the new shares won't have any voting power. Under the plan, all current stockholders would get one share of the new Class C stock for each share they now own. This effectively splits Google's stock price in half.
Google said the split is something investors have been asking for. In addition, employees given Google stock in the future will get the non-voting stock, allowing voting power to remain with existing shareholders. The same will hold true for stock-based acquisitions that Google makes.
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In a letter, CEO Larry Page and fellow co-founder Sergey Brin that without change, senior leaders would eventually lose their voting power. That, they said, would undermine "our aspirations for Google over the very long term."
Since it went public in 2004, Google's founders have emphasized a need to insulate management from short-term pressures.
The new stock plan came as Google said that it earned $2.89 billion, or $8.75 per share, in the first quarter. That's up from $1.8 billion, or $5.51 per share, a year earlier. Excluding one-time items, Google earned $10.08 per share, higher than the $9.66 that analysts polled by FactSet had expected.
Total revenue was $10.65 billion, up 24 percent from $8.58 billion.
After subtracting ad commissions, Google's revenue totaled $8.14 billion in the latest quarter. Analysts were expecting revenue of $8.09 billion on this basis.
Google's revenue was helped by a 39 percent increase in "paid clicks," but the prices of its search-driven text ads continued to decline. The so-called "cost-per-click" for these ads declined 12 percent from the same time a year earlier.
Google's report for the October-December quarter had been a disappointment, with earnings and revenue below analysts' expectations. A drop in search ad prices also spooked investors, who sent the stock down 8 percent after the company issued its report in January. Thursday's stronger results seemed to reassure investors that the prior report was something of an exception.
In a conference call with analysts, Page called the first quarter "very strong," but acknowledged there's more work to do.
"Google is a large company now so we'll achieve more and do it faster if we approach life with the passion and the soul of a startup," he said. "This (will) involve a lot of cleanup."
Expenses rose 16 percent to $7.3 billion, and Google's employee base grew 2 percent to 33,077 full-time workers.
Google did not say when the stock split will occur. It first needs shareholder approval in June, though that's expected because Google's senior leaders have most of the voting power.
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When the split happens, the value of existing shares will be split into two, so half remains with the existing Class A shares and the remainder will be with the new Class C shares. Investors will have twice the number of shares than before, but the total value and voting power won't change.
"It's important to bear in mind that this proposal will only have an effect on governance over the very long term," Page and Brin wrote in a letter to investors. "It's just that since we know what we want to do, there's no reason to delay the decision."
Mountain View, Calif.-based Google's stock climbed $3.09, or about 0.5 percent, to $654.10 in after-hours trading. The stock had closed up $15.05, or 2.4 percent, to $651.01.