Tech giant Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) reported first-quarter 2019 results after the market close on Monday. Both Class A and Class C shares fell 7.3% in after-hours trading on Monday. We can attribute the market's reaction to revenue coming in lighter than what Wall Street was expecting, largely because of decelerating advertising sales growth. Advertising is Alphabet's bread and butter, accounting for the bulk -- 84.5% in the first quarter -- of its total revenue. Here's an overview of Alphabet's quarter in five numbers. Revenue jumped 17% Alphabet's net sales increased 17% year over year to $36.33 billion, falling $1 billion short of the $37.34 billion that Wall Street was expecting. On a constant-currency basis, revenue increased 19% -- a deceleration from the previous quarter's 23%. Here's how the segments -- Google and other bets -- performed: Metric Revenue Q1 2019 Year-Over-Year Change Google properties, or "sites" (advertising) $25.68 billion 16.7% Google network members' properties (advertising) $5.04 billion 8.5% Google segment total advertising revenue $30.72 billion 15.3% Google segment other revenue $5.45 billion 25.1% Google segment total revenue $36.17 billion 16.7% Other bets (formerly "moonshots") segment $170 million 13.3% Total $36.34 billion 17% The company's overall results were once again "driven by ongoing strength in mobile search along with important contributions from YouTube, followed by Cloud," CFO Ruth Porat said on the earnings call. Ad revenue growth of 15.3% year over year represents a deceleration. In the past four quarters, this metric was 19.9% (Q4 2018), 20.3% (Q3 2018), 23.9% (Q2 2018), and 24.4% (Q1 2018). On the earnings call, Porat attributed this slowdown to three factors: an unfavorable foreign exchange impact versus a favorable one in the year-ago period, a tough comparable because ad revenue growth was particularly strong in 2018, and the timing of product changes in ads, which can affect year-over-year growth rates. Nonetheless, the notable deceleration has likely stoked concerns among some investors that Amazon.com could be capturing market share from Google, which is the dominant player in the digital ad space. While Google "other revenue" year-over-year growth of 25.1% is strong, it's still a deceleration from the previous quarter's growth of 30.7%. Growth was driven by the company's cloud-computing business Google Cloud and its Google Play store, with hardware partially offsetting growth. The culprit in hardware was lower year-over-year sales of the Pixel smartphone, which Porat attributed in part to "heavy promotional activity industrywide, given some of the recent pressures in the premium smartphone market." Revenue from "other bets" -- which contributed just 0.5% of total revenue -- continues to come primarily from Alphabet's Fiber high-speed internet and its Verily life science businesses. Other bets continues to lose money, posting an operating loss of $868 million in the quarter. The European Commission fined Alphabet $1.7 billion The European Commission (EC) fined Alphabet 1.5 billion euros, or about $1.7 billion, in late March. The EC alleges that "certain contractual provisions in agreements that Google had with AdSense for Search partners infringed European competition law," Alphabet said. The fine negatively affected the company's reported (or generally accepted accounting principles, aka GAAP) operating and net income. Investors can expect the company to appeal, as it has in similar cases. Adjusted operating income increased 8.8% Excluding the EC fine, operating income grew 8.8% year over year to $8.3 billion. On a GAAP basis (which includes the fine), operating income declined 13.4% to $6.6 billion. Operating margin contracted because costs continue to increase faster than revenue. GAAP and adjusted operating margin were 18% and 23%, respectively, down from a 25% operating margin in the year-ago period. Total cost of revenue, including traffic acquisition costs (TAC), increased 19% year over year. Other cost of revenue soared 27% year over year, primarily driven by Google-related expenses, Porat said on the call. She added that the "biggest contributor was costs associated with our data centers and other operations, including depreciation, followed by content acquisition costs, primarily for YouTube and mostly for our advertising-supported content, but also for our newer subscription businesses, YouTube Premium and YouTube TV." Operating expenses, excluding the impact of the EC fine, rose 20% year over year. Porat said that the "biggest increase was in R&D [research and development] expenses, with headcount growth in Cloud as the largest driver." Adjusted EPS rose 19.8% Earnings per share (EPS) adjusted for one-time items rose 19.8% to $11.90, from $9.93 in the year-ago period. The year-ago figure excludes a $3.40 positive contribution from Alphabet's adoption of a new accounting standard that quarter, while the current quarter excludes the EC fine. Wall Street was looking for adjusted EPS of $10.58, so the company comfortably beat the consensus estimate. On a GAAP basis, net income declined 29.2% year over year to $6.7 billion, while EPS fell 28.7% to $9.50. Operating cash flow was $12 billion Alphabet's operating cash flow was $12 billion, and its free cash flow was $7.4 billion in the quarter. The company ended the period with $113.5 billion in cash, cash equivalents, and marketable securities on its balance sheet. Couple this with its very low long-term debt, and its balance sheet remains robust.<doc-sep>Yes, the major public clouds offer a lot. But what you may not know are the limitations, and how open clouds make the difference. Elevate your enterprise data technology and strategy at Transform 2021. (Reuters) — Alphabet’s Google failed to reap the benefits of a strong economy that bolstered rivals in the first quarter, leaving the search giant’s revenue below Wall Street targets on Monday. Shares of Alphabet dropped more than 5% after hours after closing up 1.5% at a record-high of $1,296.20. Major competitors for ad spending such as Facebook, Snap, Amazon.com, and Twitter all reported last week quarterly revenue above or in line with analysts’ expectations. Alphabet said its quarterly revenue rose 17% from a year ago to $36.3 billion, compared with Wall Street’s average estimate of $37.3 billion, according to IBES data from Refinitiv. Accounting for currency fluctuations, revenue rose 19%. The 17% rise was the slowest in three years and compared with 26% for the same quarter a year earlier. The company said paid clicks on its properties fell 9% compared with the previous quarter. Quarterly costs rose about the same as revenue, up 16.5% from last year to $29.7 billion. Expenses have surged faster than revenue for much of the past two years, concerning some investors amid increased scrutiny on the company’s privacy practices and efforts to restrict advertising on potentially offensive content. But positive macroeconomic signals have given them reason to believe that the company’s ads business is healthy. Shares had risen 11.9% between its last earnings announcement and Monday. About 84.5% of revenue, compared with 85.5% a year ago, came from Google’s ad business, which sells links, banners, and commercials across its own websites and apps and those of partners. Google’s 3 billion users help make it the world’s largest seller of internet ads, capturing nearly a third of all revenue, according to research firm EMarketer. Facebook is at about 20%. Alphabet’s capital expenditures fell 36% compared with last year to $4.6 billion. The growth moderated from last quarter as Alphabet had warned in February. Alphabet has said its spending increases are justified, with huge outlays going to offices, datacenters, and artificial intelligence capabilities in line with the expected demand for its services. Still, the company has yet to tout significant revenue from its spending on ventures such as self-driving cars and its AI helper Google Assistant. Newer units that are producing noticeable revenue have lagged in market share, including Google’s consolidated hardware unit and Google Cloud, which sells computing and data storage services to businesses. And Google’s costs could jump further if governments globally follow through on growing threats to rein in the ability of apps to track users for advertising purposes. Other regulators have discussed forcing companies to step up monitoring of user content. Shares of Alphabet have gained 23% this year, the least growth among the so-called FAANG group, with Facebook at 48%, Netflix at 39%, Apple at 30%, and Amazon at 29%. Fine accounting Alphabet’s expenses included a $1.7 billion fine from the European Commission for having placed anticompetitive advertising restrictions on websites using its searches. Income also was boosted by a change in valuation of Alphabet’s stake in ride-sharing app Lyft, which held an initial public offering a month ago. Alphabet could see similar gains later this year as other highly valued startups in which it has ownership, including transport app Uber and workplace software firm Slack, make their public debuts. Including the European fine, net income was $6.7 billion, or $9.50 per share, compared with analysts’ average estimate of $7.3 billion, or $10.48 per share. Earnings excluding the fine were $8.3 billion, or $11.90 per share, beating analysts’ estimates of $10.61 per share for adjusted earnings. Operating margin excluding the fine was 23%, up from 22% in the year-ago period.<doc-sep>Alphabet misses on Q1 revenues of $36.3B; EPS of $9.50 weighed down by the $1.7B European fine After warning investors that it would be taking a $1.7 billion (€1.5 billion) charge this quarter due to a fine from the European Commission over anticompetitive advertising practices, today Google parent Alphabet reported its quarterly earnings for Q1. Overall it’s a tough quarter for the company that speaks to struggles with its growth. Alphabet reported revenues of $36.3 billion, with diluted earnings per share of $9.50. Analysts were expecting Alphabet to report GAAP earnings of $10.17 per share, with adjusted EPS expected to be $13.10, on overall revenues of $37.34, according to estimates from Yahoo Finance. The company’s stock is down by 7.35 percent in after-hours trading at the moment. Google’s canned statement in the earnings release struck a positive tone: “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, in a statement. “We remain focused on, and excited by, the significant growth opportunities across our businesses.” But the reality is that, as the advertising market matures and Google faces increasing competition, while newer areas of business have yet to mature enough to show if they will be profitable efforts for Google, which includes not just its moonshot “other bets” but even its extensive efforts in more established businesses like hardware and cloud services. The latter represented the company’s biggest expenses in R&D in the quarter, Porat said, while Sundar Pichai, Google’s CEO, had to get defensive on its hardware investments. He described the Google Home smart speaker as a “market leader” and that “our commitment is very strong” to its hardware business. “We really see this as incredibly important to drive the future of computing forward, and to make sure our services are presented to users, in the way that we intended them to be. “Computing will continue to evolve beyond phones, and so we want to make sure we are inthere are we’re very committed to it for the long term.” Google had said that the EU fine is not tax deductible and will result in a direct reduction of its GAAP operating income, GAAP net income and GAAP EPS, so the EPS weight was not a big surprise. But the sales revenue, based primarily on advertising, was also not great: the figure grew 17 percent, compared to a year ago, when it was growing at 26 percent. (Both figures are on straight numbers; on a constant currency basis they are only slightly better for this latest quarter, at 19 percent.) For some context, in the previous quarter, Alphabet reported that revenues were up 22 percent at $39.3 billion, with an EPS of $12.77. Its stock still dropped after hours Advertising represented the bulk of Google’s revenues at $30.7 billion, while its “other bets” — projects in newer technologies and moonshots like its Waymo self-driving unit and the Project Loon internet balloons — is still a massively loss-making effort, pulling in an operating loss of $868 million on revenues of only $170 million. More to come.<doc-sep>Google shares slumped on Monday after the company failed to beat analyst predictions, following a year of internal turmoil, privacy concerns, and several international fines. Stock for Alphabet, Google’s parent company, was down 7% in after-hours trading after the company reported first quarter revenue of $36.34bn, lower than the $37.33bn revenue forecast by analysts. The quarter one earnings represent a 17% increase from the same time last year, in which it reported $31.15bn in revenue. In a call with investors on Monday, Google’s CEO, Sundar Pichai, said the company would continue to invest more in algorithms on YouTube, following recent incidents that saw the platform offering misinformation, hate speech, and disturbing content targeting children. He also promised to continue to address user privacy concerns. “User expectations around privacy are constantly evolving and we stretch ourselves to meet them,” he said. “We will have more changes over the course of the year.” Alphabet’s performance failed to hold up to its main tech rivals such as Facebook, which showed record revenue growth to more than $15bn in the first three months of the year, and Amazon, which has recorded four straight quarters in a row of record profits. Microsoft also had impressive first quarter earnings, beating sales and profit expectations and becoming the third listed US firm to be valued at $1tn. The earnings report comes after the Nasdaq and the S&P closed at record highs on Friday. As of Monday, Alphabet shares were up 22% year to date, well above the S&P’s gain of 16%. Google has struggled with internal worker turmoil over the past year, with employees organizing a walkout in November 2018 over sexual misconduct allegations and hundreds of employees signing a letter objecting to the company’s treatment of temporary contractors in April. In March, it was hit with a €1.5bn ($1.7bn) by the European Union over misusing its monopoly on advertising. In January, Alphabet was fined €50m (£44m) for failing to provide users with transparent and understandable information on its data use policies. The company reported it added 4,600 employees to its payroll in the first quarter, now employing 103,459 people. In a call with investors on Monday, Ruth Porat, the chief financial officer of Alphabet, cited external investments as a place for growth in upcoming quarters. Businesses in this category, “other bets”, claimed revenue of $170m against expectations of $172m and reported an operating loss of $868m. These non-Google businesses include Alphabet-owned Waymo, which recently announced a self-driving car factory in Detroit, Michigan and Wing, a Google-owned drone delivery service that recently received FAA approval. In April, Softbank invested $125m in Loon, a Google-owned company that aims to expand internet access through high-altitude balloons.<doc-sep>
Alphabet Inc. revenue growth cooled off at the start of 2019, according to an earnings report Monday afternoon that sent shares down in after-hours trading. Google’s parent company came up short of expectations as all of its major sales categories performed slightly worse than projected in the first quarter, and yet another big fine out of Europe dinged the company’s earnings. Alphabet GOOGL, +0.74% GOOG, +1.02% reported first-quarter earnings of $6.66 billion, or $9.50 a share, on revenue of $29.48 billion, after removing traffic-acquisition costs; a year ago in the same period, Alphabet posted profit of $13.33 a share on ex-TAC sales of $24.86 billion a year ago. Alphabet’s earnings would have been $11.90 a share were it not for a $1.7 billion fine out of Europe for its online-advertising practices. Analysts on average expected ex-TAC sales of $30.04 billion and earnings of $10.60 a share, according to FactSet, and were largely ignoring the fine in their estimates. Revenue grew at a rate lower than 20% — sales grew 16.7%, 18.6% when factoring in TAC — a level Alphabet has managed to hold over the past three years. In 2018, Alphabet sales grew 23.4%, and no single quarter showed year-over-year growth lower than 20%. Opinion: Tech giants made so much money in 2018 that 2019 is bound to look pretty bad In Monday’s conference call, executives laid much of the blame on currency exchange rates, and said that they do no intend to slow plans to spend freely even as those effects continue. Shares declined further, from a 5% drop to a 7% decline, after Alphabet provided what passes for a forecast from the company, which is basically a bit of chatter about plans for spending. “Based on the continued strengthening of the U.S. dollar relative to key currencies, we expect to continue to see headwinds to our revenues and operating income again in the second quarter,” Chief Financial Officer Ruth Porat said in Monday’s conference call, before saying that plans to spend on new infrastructure and expanding the workforce were not changing. Alphabet breaks up its business into three core areas: Google advertising, other Google revenue and “Other Bets,” which are the non-Google businesses. Advertising is the most important business, bringing in the bulk of the revenue. In the first quarter, sales in that category totaled $30.72 billion without factoring in TAC, coming up short of analyst expectations of $31.48 billion. The company reported advertising revenue of $27.23 billion a year ago, pushing the sales-growth rate for that business to 15.3%, a deceleration from the fourth quarter’s rate of about 20%. Google’s other businesses — Play Store, hardware and Google Cloud — reported revenue of $5.45 billion, missing expectations of $5.67 billion, while Other Bets claimed revenue of $170 million against expectations of $172 million. Other Bets also reported an operating loss of $868 million, a jump from $571 million a year ago and appreciably worse than the average analyst estimate of $640 million. Coming this week: Beaten-down health-care companies join Apple and Google in earnings parade Executives suggested that disappointing sales of Google’s Pixel smartphone was the important factor for Google’s other revenue. “Hardware results reflect lower year-on-year sales of Pixel, reflecting in part heavy promotional activity industrywide given some of the recent pressures in the premium smartphone market,” Porat said Monday. While Alphabet’s venture-capital investing activity is not broken out in financial disclosures, it does have a big effect on earnings. Gains on investments added more than $4 billion in profit in 2018, and 2019 started similarly, with Google reporting $1.08 billion in gains on equity securities. Much of that is thought to be the increase in the value of shares of Lyft Inc. LYFT, +4.09% , which went public earlier this year. Alphabet’s class A shares closed Monday with a 1.5% gain to $1,296.20, putting its market capitalization near $900 billion, then dropped lower than $1,200 in after-hours trading. The stock was down 7.6% premarket Tuesday.