Perils, potential in Alphabet’s Q1
Google parent company misses revenue target, sending share price lower in late trading, despite growth of 17 percent
“In the long run, I thinkwe will evolve in computing fromamobile-first to an AI-first world. That’s the core of what we do.” — Sundar Pichai, Google CEO
MOUNTAIN VIEW — Google parent company Alphabet missed revenue and per-share earnings expectations in a first-quarter report Thursday, sending its stock down in after-hours trading.
But in the face of 17 percent revenue growth in the first quarter, analysts didn’t place much importance on the missed targets.
“They keep the march going on what matters, which is advertising revenue, which is their core,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “We’re not looking at a company in trouble.”
Total revenues hit $20.3 billion versus $17.3 billion for the same period last year, the firm reported. Profit rose 20 percent, or $692 million, to $4.2 billion. Per-share earnings were $6.02.
Analysts had forecast $20.4 billion in revenue, and $6.31 per-share earnings.
In a conference call after the report was issued, Google CEO Sundar Pichai highlighted the importance of artificial intelligence to Alphabet’s business. “In the long run, I think we will evolve in computing from a mobilefirst to an AI-first world,” Pichai said. “That’s the core of what we do.”
But Alphabet risks getting beaten on bots, the software-powered virtual assistants that make up one of the most important and potentially lucrative areas of AI, Moorhead said. “They can’t let Microsoft, particularly Microsoft, get a beachhead in this,” Moorhead said. “Microsoft is more than likely to be the arms dealer for the world for bots. I see Google as going to have to react to what Microsoft is doing.”
Because most bots will be operating via mobile networks, and they’re designed to eliminate the need for Web search, the rise of the bots will cut the number of people using Web search and deprive Google of the valuable data it gathers from that function, Moorhead said. Earlier this month, Facebook announced it was supporting bots in its messaging service.
Alphabet also must ramp up its services to advertising clients, to compete effectively with software companies such as Salesforce, Oracle and Adobe that offer marketing platforms, said Gartner analyst Andrew Frank. “They need to overcome the perception that they’re sort of a doit-yourself, self-service advertising channel,” Frank said.
During the earnings conference call, Alphabet and Google executives failed to address what analysts believe is a crucial issue: Google’s fight with the European Union, which has slapped it with two antitrust charges over its mobile apps and its shopping service in Web searches. “These things are like dangling chads as the market looks at them and they need to get that straight,” Moorhead said.
However, Pivotal Research Group analyst Brian Wieser said in a note Thursday that Alphabet’s financial model should be strong enough to manage fallout from the EU dispute.
Google’s Pichai announced that the firm would produce 15 or more new original YouTube films and series this year. However, analyst Frank said he also would have liked to hear more on company plans for the entertainment markets, including TV, given the Internet giant’s move via Google Fiber to compete with multichannel video-programming companies. “That’s an area that’s sort of a question mark for Google,” Frank said. “How does the broader world of entertainment present opportunities and challenges?”
In the call, Chief Financial Officer Ruth Porat said Alphabet expected to streamline its operations to cut overlap on projects.
“In certain areas where we have had multiple teams developing different approaches to a similar technology, we have been evaluating how to rationalize these approaches, enabling us to increase investments around a smaller, more focused set of opportunities,” Porat said.
The earnings report also revealed that Alphabet has boosted its workforce by 8,696 employees since the first quarter of last year. Porat said the firm wanted to “continue to add head count to drive growth.”
Alphabet’s stock closed at $780 Thursday, but fell 6 percent in after-hours trading.