Alphabet beat on earnings, but reported a first quarter revenue miss--Here’s what three experts are watching now
Here’s what Alphabet reported compared to Wall Street’s expectations:
Google is seeing decelerating growth after consistently expanding at 20% or more in prior periods. Revenue increased 17%, down from growth of 28% a year earlier, and ad sales rose 15%, down from 24% a year ago.
Paid clicks on Google properties grew only 39% from the year-ago quarter. That’s a sharp drop from the fourth quarter or 2018 (up 66%) and third quarter (up 62%). It means that Google properties are not growing traffic volumes as quickly to make up for declines in advertising prices.
Ruth Porat, Alphabet’s finance chief, said on the earnings call with analysts that most of the deceleration is related to YouTube, which “represents the vast majority of total clicks.”
Porat said, “While YouTube clicks continue[d] to grow at a substantial pace in the first quarter, the rate of YouTube click growth decelerated versus what was a strong Q1 last year reflecting changes we made in early 2018, which we believe are overall additive to the user and advertiser experience.”
Investors had high hopes coming into the report with the stock surging 24% for the year and closing at a record on Monday. The stock has joined a broader rally across the tech industry.
Traffic acquisition costs (TAC) in the period were $6.86 billion, while analysts expected $7.26 billion. This metric represents the payments Google pays to companies like Apple to be the default search engine on their browser.
Alphabet recorded a European Commission fine of $1.7 billion in the quarter as a settlement for stifling competition in the online ad sector. Excluding the fine, the company’s operating income rose 26% to $8.31 billion. Total cash and marketable securities rose 4% to $113.5 billion.
Google has pinned much of its future growth on the emerging areas of its business as cost per clicks (CPC) decline. The company’s hardware and cloud businesses are included in Google’s “other revenues” segment, which saw a 25% increase to $5.45 billion.
Headcount growth in cloud was the biggest driver of the company’s increase in operating expense, Porat said on the call. A big chunk of Google’s costs in recent quarters has been dedicated to bolster the cloud business, which is trying to keep pace with market leaders Amazon Web Services and MicrosoftAzure. Longtime Oracle executive Thomas Kurian was named CEO of Google’s cloud group in November.
He said at a conference in February that Google’s cloud business will “accelerate the growth even faster than we have to date.” Porat said on Monday that capital expenditures will increase this year but “at a meaningfully lower rate than in 2018.”
Alphabet’s so-called “Other Bets,” which include its self-driving startup Waymo and health venture Verily, remain very small, with revenue of $170 million, up from $150 million a year ago.
It’s the second straight disappointing quarterly report for Alphabet. After fourth-quarter numbers were released, shares of Alphabet fell because of higher-than-expected capital expenditures and a lower operating margin.
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