Google Inc. reported a sharp gain in quarterly profit Thursday, as the Internet search giant moved ahead with a long-anticipated stock split that keeps its co-founders firmly in control.
The two-for-one stock split, which will deliver a new class of non-voting capital stock to shareholders, was expected as the company's share price ballooned over the years.
Many investors had been calling for Google to issue a dividend from its growing cash pile, which has swelled to nearly $50 billion. But Google decided to go with a stock dividend that ensures the founders, Larry Page and Sergey Brin, will maintain control of the company.
"We recognize that some people, particularly those who opposed this structure at the start, won't support this change—and we understand that other companies have been very successful with more traditional governance models," the founders said in a letter to shareholders. "But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users."
Google's shares rose 2.4% to $651.01 on Thursday ahead of the announcement. In after-hours trading, the shares were recently up about 0.5%.
According to last year's 10-K annual filing, Google had 252.7 million shares of Class A stock and 69.5 million shares of Class B stock outstanding at March 31, 2011.
The Class B shares have 10 votes apiece. The two founders each owned about 27 million Class B shares as of last March, which gave them each about 29% of the total voting power. Eric Schmidt, the former chief executive who is now executive chairman, holds 9 million Class B shares, giving him about 10% of the total voting power.
Meanwhile, Google said its first-quarter profit rose 61% as the Internet giant saw a sharp increase in interest in advertising in its dominant search engine.
First quarter profit was $2.89 billion, Google said, or $10.08 a share on an adjusted basis. Net revenue came in at about $8.1 billion.
Analysts polled by Thomson Reuters had expected Google to report adjusted earnings of $9.65 a share, and nearly $8.2 billion in net revenue.
"Overall, it was pretty positive," ITG analyst Steve Weinstein said of Google's report, adding, "They did a good job of controlling expenses."
Google's earnings news follows a fourth-quarter report issued in January that disappointed analysts and investors. That prior report included a surprising 8% decline in the average price paid by advertisers in Google's dominant search engine in the quarter, which many on Wall Street found disconcerting.
On Thursday, Google said those prices paid by advertisers, or costs per click, fell 12%, at the low end of expectations.
ITG's Weinstein said investors shouldn't make too much of the declining average price of clicks, noting that it's attributable to a number of factors including more low-priced ads appearing in emerging markets. "There's just a mix shift in the business," the analyst said.
Google has noted that the drop in prices per click has been accompanied by a surge in overall clicks, indicating that their core search advertising business is expanding further. The company said its paid clicks, a measure of the rate at which users are clicking on advertisements in its search engine, jumped 39% in the first quarter.
Google said its total costs in the first quarter rose 16%.
Google has spent heavily to expand into newer businesses such as online display advertising and social networking.
The company said Thursday it added about 600 new employees in the quarter, bringing its total to 33,077. The company set a new annual hiring record last year when it added more than 8,000 employees.
Write to John Letzing at john.letzing@dowjones.com
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