Serious problems: as evidenced by the financial report Google

Serious problems: as evidenced by the financial report Google

Serious problems: as evidenced by the financial report Google
The parent company Google Alphabet could not meet the expectations of investors — as follows from the financial report for the first quarter, the brand’s revenues were lower than analysts ‘ estimates.

The net profit of Alphabet decreased by almost 30% in the first quarter of 2019.

Revenues from sales amounted to $29.5 billion, while experts predicted $30.04 billion in Addition, advertising revenues grew by only 15%, showing the slowest growth since 2015. But Google’s competitors are not asleep — torn by internal and external scandals Facebook showed growth in the advertising sector by 26%.

In addition, the quarterly revenue of the social network Mark Zuckerberg exceeded $15 billion, increasing the state of its Creator by $3.9 billion. Unfortunately, Google can not boast of similar results.

Financial Director of Alphabet and Google Ruth Porat believes that the slowdown is due to fluctuations in the exchange rate and the release time of new products. At the same time, Porat did not explain what products of the company she had in mind and how they could affect the business.

The number of clicks on Google ads increased by only 39%, the lowest annual growth since 2016. In reducing this figure, the financial Director accused YouTube video hosting owned by Google, and changes in its policy designed to improve the user experience. Ruth Porath declined to comment further.

It is possible that the company’s business was affected by the recent large fine from the European Commission of €1.49 billion.

These monetary sanctions were imposed on Google for violation of EU antitrust laws, in particular, for abuse of a dominant position in the online advertising market.

This is the fourth antitrust case against Google in the European Union in the last five years.

Alphabet shares fell by 7.8% on the background of the publication of reports.

The results of Alphabet, the parent company of Google, for the first quarter of 2019 showed a slowdown in revenue compared to the main competitors than disappointed investors,  analyst IC «freedom Finance» Alain Sabitov.

«The revenue of the Internet giant increased by 16.7% to $36.3 billion, which was almost $1 billion less than the consensus forecast. In addition, the growth rate showed a marked decline compared to 26% a year ago and 22% in the last quarter. We believe that this trend indicates the maturity of the traditional advertising business of Google, where the growth was 15%, and the difficulties with further acceleration in this direction. The results also contrast with the performance of social networks Twitter and Facebook (the latter advertising revenue rose by 26%). In addition, Amazon is becoming more active in the advertising market creating additional competition for Google,» the expert explained.

To maintain sustainable development, the company should actively develop other areas of business — the segment on the creation of ways drones and cloud service, where things are not going as well as we would like.

Google’s non-advertising revenues, which include cloud revenues, increased by 25% to $5.45 billion in the quarter.

For comparison, the market leaders Amazon and Microsoft cloud revenue growth rates exceeded 40% this quarter, although their base is higher. All this suggests that the company’s efforts to develop in the cloud direction have not yet been crowned with obvious success.

However, a new head of this segment may well make a difference, but it will take time and resources, which can put pressure on marginality in the short term.

«Thus, the development of Alphabet as a result of reaching the maturity stage of the advertising direction slows down. We believe that the revenue growth rate this year will not exceed 20%. At the same time, the cloud business or the Waymo unmanned taxi service can provide income with a positive driver, but for this, the company needs to make more efforts»

Dana Tessen

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