Alphabet shares fall as Google's parent company suffers from changes at YouTube

Fredrick Soto
May 1, 2019

Google parent Alphabet beat analyst earnings expectations but reported slowing revenue growth amid tougher competition in the online advertising market.

Alphabet's expenses included a $1.7 billion fine from the European Commission for having placed anticompetitive advertising restrictions on websites using its searches.

"In terms of our key revenue drivers, with respect to Sites revenues as we indicated last quarter, the timing of product changes in ads at times can have an impact on year-on-year growth rates", said Alphabet CFO Ruth Porat during the first-quarter earnings call, suggesting the timing of changes to its ad products may have had an adverse impact on the quarter's revenue growth rate.

Traffic acquisition costs (TAC): $US6.86 billion, or 22% of advertising revenue, compared with 24% of advertising revenue during previous year.

"We delivered robust growth led by mobile search, YouTube, and Cloud, with Alphabet revenues of $36.3 billion, up 17 percent versus past year", Alphabet Chief Financial Officer Ruth Porat said. The growth moderated from last quarter as Alphabet had warned in February.

For the quarter that ended March, Wall Street is looking for the Mountain View, Calif. -based tech giant earn $10.56 per share on revenue of $37.34 billion. Google's other revenue, which includes the cloud business, rose 25 percent to $5.45 billion.

Michael Nathanson of analysts MoffettNathanson said that, as was the case with Facebook, Google's slower growth could be a blip rather than "some early flashing red light" that would force "conventional wisdom to be rethought". Investors responded to the revenue miss by sending Alphabet's stock down 6.6% in after-hours trading. The company doesn't break out YouTube and cloud revenue, but the two are important sources of future growth. However, the overall segment's rate of growth pales considerably next to AWS' and Microsoft's cloud growth. The segment posted an operating loss of $868 million, way up from a $571 million loss a year ago.

Even though revenues climbed, quarterly profits dipped a significant 29 percent to $6.7 billion.

Morgan Stanley analyst Brian Nowak said Google's "deceleration and uncertain forward trajectory highlight the need for better transparency" in how it reports results.

But Google continues to face pressure around the world from regulators, notably in Europe amid multiple investigations over alleged abuse of its dominance in internet search, advertising and its mobile system.

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