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© Reuters. FILE PHOTO: The Google logo is represented at the entrance of Google offices in London.
By Arjun Panchadar and Paresh Dave
(Reuters) – Google Alphabet (NASDAQ) Inc. has failed to capitalize on a strong economy that has bolstered rivals in the first quarter as the leading Internet advertising company faces heightened competition in its research and hardware activities and undergoing disruptive changes at YouTube.
Alphabet shares fell 7% after hours, after closing 1.5% higher to a record $ 1,296.20.
Alphabet CFO Ruth Porat told analysts that the company was experimenting with its advertising products as users increasingly depended on mobile devices and resulted in revenue volatility. Sales of Google Pixel phones have also struggled with intense competition in the premium smartphone market, she said.
Main competitors for advertising expenses such as Facebook Inc (NASDAQ :), Snap Inc (NYSE :), Amazon.com Inc (NASDAQ 🙂 and Twitter Inc (NYSE 🙂 have all reported quarterly earnings above normal or in line with analysts' expectations last week.
Alphabet said its quarterly revenues grew 17 percent from the previous year, reaching $ 36.3 billion, compared to an average estimate of $ 37.3 billion on Wall Street, according to Refinitiv's IBES data.
The 17% increase is the slowest in the last three years, compared to 26% in the same quarter of the previous year.
Facebook, the number two Internet advertising company, posted 26% growth to $ 15.1 billion in quarterly results last week.
Alphabet said the number of paid clicks was down 9% from the previous quarter.
Porat also said that the slowdown in revenue growth reflected currency effects and a strong 2018. Revenues rose 19% in the quarter in constant currency.
Quarterly costs increased in much the same way as revenues, up 16.5% from the previous year, to $ 29.7 billion.
Spending has increased faster than revenues for much of the past two years, affecting some investors as the company's privacy practices are better monitored and efforts are made to limit advertising with potentially offensive content.
But positive macroeconomic signals have given them reason to believe that the company's advertising sector is in good health. Shares had risen 11.9% between his last earnings announcement and Monday.
About 84.5% of revenues, compared to 85.5% a year ago, came from Google's advertising industry, which sells links, banners and ads on its own websites and apps as well as those of its partners.
The 3 billion Google users make it the world's largest seller of Internet advertisements, with nearly a third of revenue, according to the EMarketer research firm. Facebook is about 20%.
Alphabet's capital expenditures decreased by 36% from the previous year to $ 4.6 billion. Growth was moderate compared to last quarter, as Alphabet warned in February.
Alphabet stated that its spending increases were justified, with significant expenses being allocated to offices, datacenters and artificial intelligence capabilities in line with the expected demand for its services.
Nevertheless, the company has not yet announced significant revenues from its spending in companies such as autonomous cars and its assistant artificial intelligence, Google Assistant.
The market share of newer units that are generating significant revenues is lagging behind, including Google's consolidated hardware unit and Google Cloud, which sells IT and data storage services to businesses.
And Google's costs could increase further if governments, as a whole, respond to the growing threats to limit the ability of apps to track users for advertising purposes. Other regulators have considered forcing companies to strengthen the monitoring of user content.
Alphabet shares gained 23% this year, the weakest growth of the FAANG group, with Facebook at 48%, Netflix (NASDAQ 🙂 at 39%, Apple (NASDAQ 🙂 at 30% and Amazon at 29%.
ACCOUNTING
Alphabet's expenditures include a fine of $ 1.7 billion from the European Commission for imposing anti-competitive advertising restrictions on the websites that make use of its research.
Revenue was also boosted by a valuation change in Alphabet's participation in a carpool application. Lyft Inc. (NASDAQ :), which launched an initial public offering a month ago. Alphabet could record similar gains later this year than other highly regarded startups, including the transportation application Uber Technologies (NYSE 🙂 Inc., and the software company working Slack Technologies Inc., make their debut in public.
Taking into account the fine imposed in Europe, the net profit amounts to $ 6.7 billion, or $ 9.50 per share, against an average estimate of $ 7.3 billion, according to analysts, of $ 10.48 per share. Profit excluding the fine was $ 8.3 billion, or $ 11.90 per share, exceeding analysts' estimates of $ 10.61 per share for adjusted earnings.
The operating margin excluding the fine was 23%, compared with 22% a year earlier.
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