Alphabet Earnings Beat BUT Revenue Miss and Traffic Acquisition Costs Rise

FANG member, internet monsters Alphabet, owner of Google reported mixed third quarter earnings, beating EPS but missing on revenue forecasts. Home Hub, recent Google next-generation Pixel smartphones, Pixel 3 and 3XL outlooks are key.

FANG member, internet monsters Alphabet, owner of Google reported mixed third quarter earnings, beating EPS but missing on revenue forecasts. Home Hub, recent Google next-generation Pixel smartphones, Pixel 3 and 3XL outlooks are key.

Alphabet Google Tiles

Alphabet Reported Third Quarter Earnings After The Close Thursday

$13.06 Beat EPS 10.50 Forecast BUT Revenue of $33.7 Missed $34.04 Billion Forecast

Earnings

Alphabet’s net income rose to $9.19 billion or $13.06 per share from $6.73 billion or $9.57 per share in the prior-year period. $GOOGL reported a 21% increase in total revenues to $33.7 billion, missing the consensus estimate of $34.04 billion. Alphabet’s beat it’s adjusted quarterly earnings forecast of $10.50 per share.

Google’s profit included $1.20 in gains on equity securities. Excluding the gain, Google had earnings of $11.86 a share. Google net revenue, minus what it pays in traffic acquisition costs to partner websites, also missed expectations. Google reported net revenue of $27.16 billion under the expected $27.29

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction > After hours 1,055.00 −$48.59 (-4.40%)

GOOGL Earnings Q3 18

Highlights

  • Google reported total traffic acquisition costs of $6.58 during the quarter, up 19.6% from a year earlier, but below estimates of $6.76 billion.
  • Google said operating margin fell to 25% from 28% a year earlier.
  • Google segment revenues totaled $33.5 billion
  • Other Bets revenue was $146 million.
  • Google advertising revenues were $28.9 billion in the quarter.
  • Paid clicks improved 62% year-over-year.

Earlier this month, Alphabet unveiled the Pixel 3, Pixel 3 XL, Chromebook tablet and the Google Home Hub at its #MadeByGoogle event. Last week, the company confirmed that it is working on a censored search engine as part of its plan to re-enter China, which is a lucrative market with a large customer base.

Google was recently forced to shut down its Google + services for consumers after it was revealed that a software bug might have compromised the personal data of around 500,000 users. 

 

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 recently 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? 

  • Shares closed Friday at $1,201.47 with a 52-week trading range of $918.60 to $1,221.59.

 

Alphabet Second Quarter Earnings Recap

Alphabet Inc. (NASDAQ: $GOOGL) Q2 Earnings Beat Forecasts After Close Monday

$11.75 EPS beating $9.59 forecast on $32.7 billion revenue beating $32.19 billion forecast* 

*After adjustment for a European Commission Fine in Q2 

Earnings

Adjusted net income, excluding fines, was $8.27 billion or $11.75 per share from $6.26 billion or $8.90 per share in the same period last year. Earnings, including fines, fell 9% to $4.54 per share. Revenues rose 26% annually to $32.66 billion, Results beat consensus of $9.59 per share on $32.19 billion in revenue.

Net revenue excluding key metric TAC was expected  at $25.6 billion. Alphabet came in at above target with $26.28 billion in revenue excluding TAC. Traffic acquisition costs accounted for 23 percent of Google ad revenues.

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction > After hours 1,254.80 +43.80 (+3.62%)

Highlights

 GOOGL Earnings Q2 18

Other big tech names including $FB, $AMZN and $TWTR also report this week.

Source: Google, TradersCommunity, AlphaStreet

 

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