Google-owner Alphabet’s share price dropped a hefty 7% in after-hours trading following the release of the company’s first quarter results. The world’s third largest stock market-listed company, whose circa. $900 billion market capitalisation trails only Microsoft and Apple, still delivered 17% revenue growth. However, compared to last year’s 25% growth over the same quarter, the result counts as a blip in the company’s juggernaut-like growth. More importantly to the company’s share price, sales were $1 billion less than analysts had forecast.
Alphabet’s revenues came in at $36.3 billion compared to $31.1 billion over the first three months of 2018. Profits were $6.7 billion, down from last year’s $9.4 billion. The difference in part due to a $1.7 billion charge in relation to last year’s 4.3 billion euro EU fine handed out for the company being judged to have abused the dominant position of its Android mobile operating system.
Another dent to profits was currency fluctuations. Last year a weaker dollar added 3 points to growth and this year a stronger dollar subtracted 2. “The timing of product changes”, was also cited by Alphabet’s chief financial officer Ruth Porat.
Despite the drop on 2018 earnings, the $6.7 billion figure was actually ahead of analyst forecasts who had expected heavier capital expenditure. Alphabet has significantly ramped up investment over the past year or so in an effort to maintain growth.
Huge sums have been funnelled into Waymo, the company’s driverless vehicles operating system which it hopes to dominate the market for the new technology in a way similar to how Android does the smartphone sector. The launch of Stadia, an exciting Cloud-based computer game streaming service has also been announced for later in the year and will have meant significant investment. That investment can be expected to continue to be an expense as the company spends on enough video gaming rights and proprietary titles to make it competitive.
New services that could have helped bump up the quarter’s earnings were not timed to do so. Which presumably means they will be expected to have a positive impact on the current or next quarter. A final factor is thought to be increased completion from Amazon in product search, with the online retailer investing heavily in building up its own search functions.
Alphabet’s blip should, however, be taken in context by investors. Growth is still very strong and every quarter cannot be expected to be stellar in comparison to the last. This facet was addressed by chief executive Sundar Pichai who commented:
“We have a long-term view of where we want to go. You are going to have quarter-to-quarter variations once in a while.”
A major positive in the report was a big boost in the performance of Google pay-per-click ads served over the company’s YouTube video streaming platform. Changes led to a 59% increase in YouTube generated ‘clicks’.