Earnings Reports

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Internet giant Alphabet, owner of Google reported worse than expected first quarter earnings after the market Monday. $GOOGL stock fell over 7% on the release. Q1 included a $1.7 billion (€1.5 billion) fine from the European Commission over anticompetitive advertising practices.

Alphabet Google Tiles

Alphabet Reported First Quarter Earnings After The Close Monday

$9.50 Missed $10.56 EPS Forecast and $36.3B Revenue Missed $37.34 Billion Forecast

Earnings

Alphabet Inc. (GOOGL) reported first-quarter earnings Monday after the closing bell of $9.50 per share, failing to meet analyst consensus of $10.56 per share due to the $1.7 billion fine payment. Excluding the one-time charges, EPS came in at $11.90.

Revenue grew 17% to $36.3 billion which was lower than $37.34 billion expected by the street.

The majority of Alphabet revenue is from Google’s advertising products (85% last quarter), but analysts predicted Google’s “Other” segment, imcluding its cloud computing division, hardware sales and Play Store will generate sales of $6.43 billion. Other bets, the segment Google reserves for its more experimental units, is expected to report sales of $187 million. 

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction After hours 1,201.00 −$95.20 (-7.34%)

Googles advertising revenue trend 1Q19

Highlights

  • Google’s ad revenues improved 15% to $30.7 billion over last year.
  • However, ad revenues decreased sequentially by $1.9 billion which impacted the top line.
  • This is the first time since Q1 2018 the search giant is reporting sequential decrease in ad revenues.
  • Paid clicks grew 39% on Google properties over last year. Down from 66% last quarter.
  • The sequential decline in paid clicks growth shows that the search giant was not able to ramp up traffic to offset the drop in ad prices.

Alphabet Q1 2019 Earnings

Other Revenues segment,

Comprises of Google Cloud, Google Play and hardware sales, spiked 25% to $5.45 billion. Last quarter, this segment saw revenue growth of 31%.

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). In February, 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.

Last month, 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 improved 13% in the Other Bets division to $170 million and operating loss reduced to $868 million compared to $571 million reported last year. The increase in top line was primarily driven by revenue contribution from Access internet and TV services and Verily licensing and R&D services.

  • Google’s capex saw a sharp drop of 41% to $4.5 billion over last year. Last quarter, capex stood at $6.8 billion.
  • Free cash flow for Alphabet increased to $7.36 billion compared to $5.9 billion reported prior year. 

 

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 last quarter lay claims to roughly 37% of the total U.S. digital advertising market, ahead of Facebook’s FB 20% and showed 24% growth in Q2 ad revenues.

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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