Alphabet Tumbles After Missing Q1 Revenue Expectations

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Shares of Alphabet Inc (NASDAQ: GOOG) slumped in after hours trading Monday after the company reported higher-than-expected first quarter earnings but fell short of revenue estimates.

Analysts were expecting the Google-parent company to post another solid quarter, despite an increasing threat to its online advertising business from Amazon Inc (NASDAQ: AMZN). Alphabet stock was down $93.53, or 7.26% to $1,194.05 as of 5:10 p.m. ET. The stock had rallied 25% in the past year, through Monday’s close.



GOOG Earnings & Outlook

Alphabet posted first quarter earnings of $6.66 billion, or $9.50 per share, down 29% from $9.4 billion a year earlier and due to a $1.7 billion fine paid to the EU in March. Excluding non-recurring items, earnings came to $11.90 per share. On average, analysts surveyed by Refinitiv had been calling for adjusted earnings of $10.61 per share in the quarter.

The company came out with revenue of $29.48 billion (after removing traffic acquisition costs), compared with $31.1 billion in the prior year period. Analysts were forecasting revenue of $37.33 billion during the March quarter of fiscal 2019.

Traffic acquisition costs (the amount of money that Google pays to mobile partners and websites to draw consumers to their platform) were pegged at $6.86 billion during the quarter.

The search giant’s advertising business brought in revenues of $30.72 billion, down from $32.6 billion in Q4 2018. Wall Street expected the segment to post revenues of $32.64 billion during first quarter 2019. Meanwhile, cost-per-click on Google properties, which represents the amount the company makes for each user click, fell 19% from the same period last year.

Alphabet saw revenue rise 25% to $5.45 billion in its hardware and cloud business. Its Other Bets unit – which include autonomous health venture Verily and driving startup Waymo – generated revenue of $170 million compared with $150 million in the March quarter of calendar 2018.

Alphabet Executive Comments

“We delivered robust growth led by mobile search, YouTube, and Cloud with Alphabet revenues of $36.3 billion, up 17% versus last year, or 19% on a constant currency basis,” said Ruth Porat, Chief Financial Officer of Alphabet and Google. “We remain focused on, and excited by, the significant growth opportunities across our businesses.”

Alphabet Inc Profile

Alphabet Inc is a holding company, with Google, the Internet media giant, as a wholly owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google’s other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue.

Sales of hardware such as Chromebooks, the Pixel smartphone, and smart homes products, which include Nest and Google Home, also contribute to other revenue. Alphabet’s moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster Internet access to homes (Google Fiber), self-driving cars (Waymo), and more. Alphabet’s operating margin has been 25%-30%, with Google at 30% and other bets operating at a loss.

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