Alphabet’s third-quarter revenue misses by a fraction – share price declines
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Alphabet’s third-quarter revenue misses by a fraction – share price declines

Alphabet, the Silicon Valley giant that owns Google, YouTube, and others, reported third-quarter earnings last week – and investors didn’t like what they saw. In a scenario that is eerily similar to what happened with Amazon’s latest earnings report (also commented on today), Alphabet delivered strong numbers across the board – but a fractional miss on revenue was all it took for investors to punish the stock. Undoubtedly, drivers of this poor sentiment go beyond the strictly financial – after all, Alphabet continues to deliver growth above 20%.

Investors sent Alphabet’s share price down last week after earnings

graph 3010 alphabet

Source: Yahoo Finance

Here are the numbers: Alphabet said net revenues for the quarter came in at $27.2 billion. That’s a 22% increase against the year-ago quarter, but just fell short of analysts’ expectations of $27.3 billion. When it comes to earnings per share (reported on a GAAP basis) the company outperformed the Street’s estimates, delivering $13.06 instead of the predicted $10.45. As has previously been the case with Alphabet’s earnings, most of the company’s revenue came from Google’s advertising business, and traffic acquisition costs remained flat at 23% of ad revenue. Other revenues – a metric that includes the ever-more important Cloud and Play businesses – increased by 29% year on year to $4.6 billion.

As with Amazon, it’s hard to make the case that these are shockingly bad results – but if you were going by the company’s share price alone, you might be forgiven for thinking otherwise. In fact, Alphabet’s third-quarter earnings have to be seen as demonstrating an incredibly strong underlying business – one which is continuing to grow at an incredible pace, given its size. So, have expectations and reactions simply gone haywire?

It’s highly likely that Alphabet is suffering from a tech backlash, and investor sentiment is being driven as much by negative news as it is the financial realities of the company’s manifold business operations. Just prior to this earnings release, for example, news broke that detailed allegations of sexual misconduct among several former Google executives. It’s also faced a rough year in the news over privacy, regulatory debates, and fake news.

Despite these concerns, Alphabet executives remain confident over the global economy. They also remain confident in Google, and its continued leadership position in a changing world. On the company’s earnings call, Google CEO Sundar Pichai summed this feeling up, saying: “We had a great quarter and it was particularly special because last month we celebrated Google’s 20th birthday, and the 10th birthday of Chrome. It’s exciting to think that 20 years in we are still just at the beginning of what’s possible.”

Dominion holds Alphabet in its Global Trends Managed Fund.

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