Alphabet Shares Drop After Disappointing Earnings Call

Shares of Alphabet fell approximately 7 percent, this week, when the Google parent reported that revenue fell below analyst estimates for the first quarter of 2019.  

More specifically, Alphabet reported revenue of $36.34 billion against the $37.33 analysts had expected. Advertising revenue was $30.72 billion, which is short of the 32.64 billion they had expected and also retracted from the $32.6 billion earned in the fourth quarter. Traffic acquisition costs were also lower than expected: $6.86 billion against $7.26 billion.  Earnings per share, however, was higher than expected: $11.90, excluding items, compared with $10.61. 

Apparently, Google is experiencing growth deceleration after several periods of consistent expansion.  Alas, to put the data more succinctly, revenue might be up 17 percent, but that is down from 28 percent growth just one year ago.  Also, ad sales rose only 15 percent this quarter, which is down from 24 percent from the same period one year ago. 

Other metrics to consider include paid clicks on Google properties, which grew 39 percent on the year.  This is also quite a big drop from the fourth quarter of 2018, which registered up 66 percent, and third quarter, at 62 percent.  In addition, operating margin fell by 18 percent in Q1, which is also down (by 3 percent) from the previous quarter. 

Share price fell, then, as investors had higher hopes the report would be more promising. After all, the stock was up 24 percent on the year by end of day, on Monday. And Google was only part of a bigger rally throughout the tech industry.

All this in mind, Google CEO Sundar Pichai said, on Alphabet’s quarterly earnings call, he still feels good about the company’s current hardware portfolio. This includes products like the Pixel (mobile phone), Home (smart speaker), and Nest (thermostat) products.  Pichai also comments that the team has been working to scale operations in order to drive costs down and boost profits.  

On top of this, though, it appears that Alphabet may be looking to bank on Google’s other businesses, mainly the Play Store and Google Cloud, as well as some of their hardware.  These other businesses, collectively, reported revenue of $5.45 billion, which also failed to meet expectations of $5.67 billion.  And other non-Google entities associated with Alphabet also claimed underwhelming revenue ($170 million vs an expected $172 million) while reporting an operating loss of $869 million.