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Alphabet Inc’s Q1 2019 Earnings Disappoint As Google’s Ad Revenues Fall

Apr 29
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Under the shadow of the EC’s latest fine, Google’s parent company Alphabet Inc (NASDAQ:GOOG) reported its earnings results for the first quarter of 2019.  Prior to the company’s investor call, Wall Street had set expectations for $30 Billion in Revenue and Alphabet Inc. has reported Revenues of $29.48 Billion.

The group has however exceeded estimations for Earnings Per Share, by reporting $11.90/share as opposed to estimates of $10.17/share. As Alphabet had announced prior to today’s earnings release, the company has also accounted for a $1.9 Billion fine levied on it by the European Commission for uncompetitive practices part of agreements that Google had with its AdSense partners.

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Alphabet Inc’s Net Income Falls Year-Over-Year To $6.7 Billion (EC Fine Included) As Google’s Parent Company Posts $35 Billion In Revenue For 2019’s First Quarter

Starting from Google, the big thing to note this quarter for the company is a big decrease in paid clicks on Google properties. This figure has decreased by 9% from Q4 2018 to Q1 2019, as opposed to an 8% increase from Q4 2017 to Q1 2018. In lieu of this decrease, Google’s Cost-per-Click on Google properties has gone up by 5% over the quarter.

Alphabet Inc (NASDAQ:GOOG )reports $35 Billion in revenue, showing a 17% Year-on-Year increase. However, the company’s Net Income does not show a similar increase, with or without the impact of the European Commission’s fine. With the fine, the holding company’s Net Income is $6.6 Billion; without it, Alphabet’s Net Income is $8.3 Billion. In comparison, the group’s Net Income for Q1 2018 stood at $9.4 Billion.

Moving towards Google’s advertising revenues, the company posted $30 Billion in the category. This is a Year-on-Year increase from Google’s Q1 2018 ($26.6 Billion of advertising Revenues), but a Quarterly decrease from $32 Billion posted last quarter. However, this decrease is normal, as it takes place every year as purchases slow down after the holiday season is over.

Losses from Alphabet Inc(NASDAQ:GOOG)’s ‘Other Bets’ are now a consistent pattern across the company’s earnings releases. This quarter, Other Bets has posted a loss of $868 million, up from a $571 million loss in Q1 2018, and down from a $1,328 million loss last quarter. Moving towards what is perhaps the most important metric of Alphabet Inc’s earnings release, Google’s TAC (Traffic Acquisition Costs).

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Google’s TAC increased to $3.48 Billion from $3.34 Billion in Q1 2018. This is a modest increase when we compare TAC for Q1 2018, which had increased to $3.34 Billion from $2.8 Billion in Q1 2017. Additionally, Google’s TAC stood at $3.9 Billion in Q4 2018, so investors will be glad to hear that the company has spent less on acquiring traffic.

However, if this decrease is analyzed in tandem with a decrease in Google’s advertisement revenues, then perhaps the reasons behind this decrease are not particularly rosy. Alphabet Inc(NASDAQ:GOOG)’s Earnings-Per-Share fell to $9.50 this quarter, from $13.33 in Q1 2018, despite the fact that the company’s shares outstanding decreased to 700,879,000 this quarter. Alphabet Inc’s effective Tax rate has increased to 18%.

“We delivered robust growth led by mobile search, YouTube, and Cloud with Alphabet revenues of $36.3 billion, up 17% versus last year, or 19% on a constant currency basis. We remain focused on, and excited by, the significant growth opportunities across our businesses,” said Ruth Porat, Chief Financial Officer of Alphabet and Google.

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