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Alphabet shares down 15 percent since reporting disappointing earnings

MoneyWatch headlines: WeWork, Google, Amazon
  • Shares of Google-parent Alphabet have fallen roughly 15 percent since reporting financial results on Monday that fell short of analyst forecasts.
  • Investors are concerned about slowing sales of online ads, Alphabet's core business.
  • Alphabet executives talked up the company's growing prowess delivering "cloud" and AI-based services.

San Francisco — Shares of Google-parent company Alphabet is sliding on the back of a rare earnings miss by the Internet giant. The stock was down 8 percent on Tuesday, extending a similar decline in trading after markets closed on Monday, and lopping more than $60 billion off its market value.

Google's advertising revenue, its key moneymaker, grew by 15 percent to $30.7 billion — slower than investors had hoped. Its digital-ad rivals Facebook and Amazon, meanwhile, both reported strong earnings last week, adding to the investor surprise when Alphabet stumbled despite a strong economy.

Alphabet executives deflected concerns of growing competition on a conference call with analysts Monday, instead suggesting that fluctuating currency rates and changes to Google ad products during the quarter led to the slowdown. The online-ad industry is also still in a years-long shift to phone and tablet ads and away from ones aimed at desktop users. Ads for mobile devices bring in less money.

"While the growth outlook is modestly lower for 2019, we believe growth remains solid given Google's scale," Raymond James analysts said in a research note.

Ad business slowing

Still, the results sparked concerns that Google's enormously profitable advertising machine might be starting to sputter. Some analysts suggested it's a signal that Google might need to diversify its business more quickly.

"Does this put more pressure on Google to make more aggressive bets on cloud?" asked Wedbush Securities analyst Dan Ives.

Google executives highlighted the company's cloud-computing business as one of its fastest growing segments during the Monday call. But the cloud currently accounts for only a small slice of Alphabet's overall revenue. The company reported $5.4 billion in "other" revenue, which includes cloud, hardware and Play Store purchases.

Google jumps into the gaming industry with new streaming service

"We feel very positive about the enormous opportunities ahead involving Search and Assistant, capturing new ad budgets, cloud computing, AI and other areas," said CEO Sundar Pichai in a conference call with analysts.

Hardware sales also slowed during the quarter for the Pixel phone, Google chief financial officer Ruth Porat said on Monday's call, reflecting a broader industry slowdown in smartphone sales. "Hardware results reflect lower year-on-year sales of Pixel reflecting in part heavy promotional activity industry-wide given some of the recent pressures in the premium smartphone market," she said.

EU hit still to come

Alphabet reported a first-quarter profit of $8.3 billion, down 6 percent from $8.9 billion in the year-earlier period. Profit amounted to $11.90 per share, well above Wall Street estimates of $10.60.

That figure doesn't include an expected charge of $1.7 billion to account for a European Union antitrust fine. The fine was imposed in March for anti-competitive practices in Google's advertising business, referring to a specific exclusivity practice Google now says it has ended.

Google and Facebook, along with other internet companies, are feeling rising heat from regulatory bodies around the world as people and governments question their privacy practices. Some regulators express concern that the largest companies are so big that they're stifling competition.

Including the fine, Alphabet's profit of $6.7 billion fell short of analyst estimates. Excluding advertising commissions that Google pays to customers, Alphabet's overall revenue was $29.5 billion — also falling short of the $30 billion analysts were expecting.

Alphabet also reported widening losses in its "Other Bets" category — a broad segment that includes experimental ventures such as self-driving car business Waymo and internet-balloon subsidiary Loon. Losses grew to $868 million from $571 million a year ago.

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