It turns out buying a company for $3.2 billion can suck the wind out of even a $15.4-billion-in-revenue quarter. The Nest acquisition took a toll on Google expenses, explained Google CFO Patrick Pichette on the company’s first-quarter earnings call today.
Buying the smart-home device maker — which recently halted sales of one of its two products — was a large part of why Google disappointed Wall Street, which expected $12.3 billion in Q1 net revenue (the actual number was $12.19 billion) and earnings of $6.33 per share instead of $6.27.
“One-time M&A deal costs impacted all of our operating lines, but most prominently our R&D line,” Pichette said. “The one-time deal costs are largely stemming from the Nest deal, which was a pretty large transaction for us in the quarter.”
Google’s first-quarter research and development costs of $2.1 billion were up more than $500 million from the same time a year ago.
As a Google spokesman further explained, that increase can be largely attributed to payroll costs associated with Nest research employees.
Pichette, who also blamed currency fluctuations as a damper on growth, later added, “When you acquire Nest for a bit over $3 billion there’s just a lot of stuff that flows through the accounting,” calling the deal a “truly extraordinary item.”
Wall Street seemed to be okay with Google’s explanation of the miss. After shares of Google’s recently split stock dropped about six percent in after-hours trading, they are now down less than three percent to $542.