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Internet giant Alphabet, owner of Google reported mixed first quarter earnings after the close Tuesday. While digital advertising fell from the Covid-19 lockdown, cloud and YouTube revenues soared sending $GOOGL up 9% after hours.

Alphabet Google Tiles

Alphabet Reported First Quarter Earnings After The Close Tuesday

$9.87 Missed $10.73 EPS Forecast and $41.159B Revenue Beat $40.96 Billion Forecast

Earnings

Alphabet Inc. (GOOGL) reported first-quarter earnings Tuesday after the closing bell with oogle earnings of $9.87 a share on a Generally Accepted Accounting Principles, or GAAP, basis. That missed analyst profit estimates of $10.73. A year earlier the company earned $11.90 a share, excluding a European Union fine. Google gross revenue rose 13% to $41.159 billion, slowing from 17% growth in the year-earlier period, but topping expectations. Analysts projected gross revenue of $40.98 billion.

Google Advertising Revenue trend Q1 2020

The majority of Alphabet revenue is from Google’s advertising products (85% last quarter), but analysts predict Google’s “Other” segment, including its cloud computing division, hardware sales and Play Store will generate larger sales. Other bets, the segment Google reserves for its more experimental units, is also expected to report higher sales.

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction After hours $1,346.00 +113.41 (9.20%)

Highlights

Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues," Chief Financial Officer Ruth Porat said in a press release.

  • Google Properties revenue rose 11.6% to $28.54 billion, below recently lowered estimates of $29.07 billion. That includes ad and services revenue from internet search, Gmail, Google Play and YouTube.
  • The Covid-19 global economic slowdown lowered advertising revenue from travel, auto and retail sectors. While YouTube usage increased amid stay-at-home orders, its advertising demand fell, analysts said.
  • YouTube revenue rose 33% to $4.038 billion.
  •  TAC rose nearly 9% to $7.45 billion, less than expected, vs. estimates of $7.75 billion.
  • TAC has been rising as Google relies more on partner sites and third-party apps to generate mobile advertising revenue.
  • Cloud computing revenue growth was a bright spot as online businesses saw more demand and companies shifted to work-from-home mode.
  • Cloud revenue rose 34% to $2.777 billion.

Alphabet Q1 2020 earnings results

Outlook

Google doesn't provide formal earnings guidance. Alphabet Chief Executive Sundar Pichai last week said it may slow hiring and marketing investments in the June quarter.

Google has been focusing on ramping up its cloud business as it has huge potential to grow the revenue multi-fold considering its market share in the cloud space compared to its peers Amazon (AMZN) and Microsoft (MSFT). Last year it acquired data-transfer start-up Alooma which helps firms to migrate from enterprise database to cloud-based database.

Google is also planning to ramp up its sales team for its cloud offering and look for tuck-in deals which would augment its cloud services business which would help it to close the gap with its nimble rivals Microsoft Azure and Amazon AWS.

The search giant also announced its foray into the gaming space by launching game streaming platform called Stadia at the Game Developers Conference. The company also added that Stadia will be powered by AMD’s graphic processors.

Other Bets Update

Revenue from “other bets,” includes its subsidiaries outside of Google like the self-driving car company Waymo..

Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities. Ruth Porat, CFO

What Analysts Will Be Watching

Google's traffic acquisition costs

Traffic acquistion costs (TAC) have been rising, even more so after the Facebook scandal and $FB CEO hauled before congress  Alphabet management's response in the conference call on growing regulatory risk and data privacy issues will be closely analysed. The other factor will be Google and Amazon's competition in voice search and smart home appliances. How will this affect or benefit future advertising ? A moderation an improvement will improve margins.

Google l has laid claims to roughly 37% of the total U.S. digital advertising market, ahead of Facebook’s FB 20%.

Alphabet's "Google other" segment

This segment includes revenue from cloud, hardware, and the Android App store. This is a hot sector, not least the cloud factor. Other brought in only 14% of first-quarter revenue, however its strong 36% year-over-year growth was a factor to overall growth and a key for momentum to continue. These investments are long term and will likely seef severe margin compression, how much will satisfy investors?

Google last year launched its next-generation Pixel smartphones. The new Pixel 3 and the Pixel 3XL boast an impressive camera, wireless charging, a better battery, dual front-facing cameras, and more. The new phones hope to challenge Apple’s AAPL latest iPhones. The company also sells an iPad-like tablet product called the Pixel Slate. Plus, the search engine powerhouse recently introduced its new Google Home Hub that allows users to voice-control other smart home products, such as security cameras and lights. Home Hub also features Google’s voice-assistant technology as it fights against Amazon AMZN and others in the crowded home assistant market.

Self-driving unit, Waymo

Where are we with regards to revenue and delivery? The obvious comparison is Tesla, does Waymo have similar issues? 

Source: Google, TradersCommunity, AlphaStreet

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