Alphabet beats the Street, but investors punish the stock for slower ad growth
Select language to see a machine translation of this article. The original language of the Article is English and the translation is provided for your convenience.

Alphabet beats the Street, but investors punish the stock for slower ad growth

If you’ve been watching Silicon Valley giant Alphabet’s share price this week, you’re probably wondering what on earth it did wrong to get punished like that. The answer is: reported quarterly earnings. But while you could be forgiven for thinking Alphabet had badly missed the mark, it actually beat on the bottom line and would have beaten on the top line if not for a one-off fine from the EU. It also saw double-digit growth in its advertising segment (the company’s main money spinner) and paid less for traffic than analysts expected. So why the hate? The answer’s simple: growth in advertising is finally slowing down.

Alphabet’s share price has fallen precipitously since earnings were released – but it’s still up 15% so far this year

02 05 alphabet

Source: Yahoo Finance

Alphabet reported revenue for the first quarter of 2019 of $36.34 billion. True, that fell short of analysts’ expectations (which were for $37.33 billion), but the cause of that miss wasn’t down to any fundamental weakness in its underlying business – it was due to a one-off fine from the European Commission during the quarter, which came in at $1.7 billion. On earnings, Alphabet logged an easy beat: $11.90 per share against predictions of $10.61 per share. And when it comes to traffic acquisition (a major outlay for the company, as it helps to drive Google’s ad business) Alphabet actually spent far less than the Street expected: $6.86 billion against $7.26 billion.

Here’s the bad news though: for the last six quarters, Alphabet has reported year on year advertising growth of 20% or more (well, in the last quarter it was 19.86%, but we’ll let that slide). This time round, it dropped to 15.31% against the same period in the previous year. The group added that paid clicks on Google properties rose by 39% year on year – a sharp drop from the fourth quarter of 2018 (when it rose 66% year on year) – which, according to CNBC’s write up “means that Google properties are not growing traffic volumes as quickly [as they used to] to make up for declines in advertising prices.”

Now, the good news: During the quarter, Thomas Kurian was named CEO of Google’s cloud business (widely seen as the company’s next big cash generator) and has promised that it will “accelerate the growth even faster than we have to date.” Chief financial officer Ruth Porat added that capital expenditure on this unit was also slowing down, saying that it would increase this year, but “at a meaningfully lower rate than in 2018.”

Disclosure

Dominion holds Alphabet in its Global Trends Managed Fund.


If you would you like to receive the Newsfeeds daily, please click here to sign up now!

Help us make this Newsfeed better by rating this article. 1 star = Poor and 5 stars = Excellent
0.0/5 rating (0 votes)

Disclaimer
The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.