SAN FRANCISCO: Alphabet Inc’s new chief executive Sundar Pichai unveiled sales figures that investors have long demanded, but shares fell 5% as Google’s advertising business and the new data about YouTube and Google Cloud broadly disappointed.
Pichai had sought to counter slowing revenue growth in the company’s main advertising business by pointing to the Silicon Valley firm’s younger units.
But Pichai’s reveal that Google’s YouTube video streaming unit is generating ad revenue at a pace of US$15 bil (RM61.7 bil) annually put it below rough estimates as high as US$25 bil.
Divulging 53% quarterly revenue growth for Google’s cloud services compared with a year ago meant it grew slower than the business it is trying to catch up to, Microsoft Corp’s Azure, which reported 62% quarterly rise in sales last week.
While financial analysts applauded the new transparency from Alphabet, some questioned executives for the second time in the last four quarters to explain why overall revenue has been missing or just barely meeting their expectations. Sales growth dipped below 20% in three quarters during 2019, compared to just once in the previous three years.
Alphabet has blamed currency exchange rates and its constant tweaking of features, saying that it is not focused on quarterly marks.
“We continue to be very focused on the benefit from better measurement, better ad delivery, better user experience,” Alphabet chief financial officer Ruth Porat responded to an analyst. “But there will be variability over time because we’re very focused on what’s in the right long-term interest.”
Shares of the company fell about 4.5% in extended trading to US$1,416.
“The stock was priced for perfection, and a top-line miss was enough to send it lower,” said Michael Pachter, analyst at Wedbush Securities. “YouTube was impressive at US$15 bil for the year, Cloud less so at US$8.9 bil.”
Other financial analysts said YouTube’s ad revenue was underwhelming too.
“YouTube is smaller than generally assumed, but on the flipside, search seems to have accelerated and is growing faster than feared,” said James Cordwell, analyst at Atlantic Equities.
Google through its namesake search engine as well as properties such as YouTube has been the web’s biggest draw for advertisers for a decade, enabling it last month to become the fourth listed company to top US$1 tril in market capitalisation.
But new concerns have emerged among investors about whether its dominance will last as US antitrust regulators investigate Google and as Amazon and Facebook Inc continue to grow their ads businesses globally. Both beat analysts’ expectations last week.
Alphabet’s overall sales in the fourth quarter were US$46.08 bil, up 17%, compared with an average estimate of US$46.94 bil among financial analysts tracked by Refinitiv.
Google ad sales in the holiday shopping quarter were US$37.93 bil, up 16.7% from the same period last year
Alphabet’s expenses have ballooned with hiring of thousands of salespeople, building of new data centres and marketing the Google brand through hardware and other ventures.
For the fourth quarter, Alphabet’s total costs and expenses rose 18.5% from a year ago to US$36.81 bil.
Porat said hiring and infrastructure spending would accelerate in 2020.
Alphabet’s fourth-quarter profit was US$10.67 bil, or US$15.35 per share, compared with the analysts’ average estimate of US$8.78 bil, or US$12.53 per share.
Hardware sales fell in the fourth quarter compared with a year ago, Porat said. Results could suffer further from any protracted work stoppages in Asia as companies combat the outbreak of a new coronavirus in China, she said.
Google last week temporarily shut down all its offices in mainland China, Hong Kong and Taiwan due to the coronavirus. It has thousands of engineers across the region, including a hardware engineering centre in Taiwan. – Feb 4, 2020, Reuters
