Alphabet Stocks Drop 3% As Investors Worry About Amazon

Jeannie Matthews
February 6, 2019

San Francisco: Riding on Google's robust ad business, the parent company Alphabet has logged $39.3 billion in revenue for the fourth quarter of 2018 - an increase of 22 per cent from the same period a year ago.

Industry tracker eMarketer forecast that Alphabet's money-making engine Google would take in $102.43 billion in digital ad revenue this year, commanding 31.3 percent of the global market.

Alphabet CFO Ruth Porat has stated that the company's rate of growth will slow further, but continued investment in shoring up its flagship products is expected to stand Google and its other interests in good stead. It revealed an operating margin of 21 percent for the fourth quarter, which was lower than the projected 22 percent margin and the 23 percent margin it reported in Q4 2017.

Google's other revenues, which include hardware sales and cloud computing, rose to $6.5 billion for the quarter from just shy of $5 billion a year ago.

Pichai said Google's cloud computing unit past year doubled the number of deals it struck worth more than $1 million.

The per-click cost on Google's advertising - an imprecise but generally useful yardstick for how much Google is able to charge advertisers - was down 29 percent compared to a year ago, and 9 percent from last quarter.

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The results beat Wall Street expectations.

Cost per click, which somewhat measures the amount Alphabet charges advertisers for each ad served on its web sites, plummeted 29 percent from 2017 and 9 percent from Q3. Baird analyst Colin Sebastian, quoted by CNBC, said he expects a "meaningful acquisition" to "enhance enterprise sales/support functions and SaaS capabilities", given that Alphabet's $109 billion cash hoard allows Google Cloud to "go elephant hunting".

Alphabet and Google, in particular, had a rollercoaster year in 2018 in terms of publicity.

Yet, the biggest issue for Google right now might not be regulatory risks so much as its own ongoing effort to diversify its revenue streams amid competition from other large technology companies. The tech stocks have also beat earnings estimates, but also their stocks dropped as their expenses were greater than expected. The revenue mainly comes from Google Fiber, a high-speed internet service, and Verily, a life sciences division, Porat said on the call.

Google CEO Sundar Pichai didn't share any concrete sales numbers, but told investors during the company's earnings call on Monday afternoon that it had sold "millions" of devices during the quarter. The "other bets" businesses had an operating loss of $3.4 billion in 2018, or about $4 per share. And these are very much bets - it lost $3.4 billion on Other Bets in the past year.

"I think Microsoft and Amazon need to keep one eye open with Google", he said.

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