Alphabet slides 5% after missing earnings expectations on revenue of $20.3B

http://techcrunch.com/2016/04/21/alphabet-slides-6-after-missing-earnings-expectations/

by pearlsteinj • 10 years ago

162 193 10 years ago

simcop23872• 10 years ago

The company posted earnings of $7.50 on revenue of $20.26 billion, while analysts were expecting earnings of $7.96 on revenue of $20.38 billion.

I'm assuming they mean 7.5 billion, and 7.96 billion respectively but if they aren't then it seems that they should check the couches in the offices.

ucha2• 10 years ago

No, it's EPS (earnings per share).

brandoncarl• 10 years ago

Earning per share....

simcop23872• 10 years ago

Thanks. I'm not that up on how things like this are usually reported, so it looked odd to me.

jerryhuang1002• 10 years ago

GOOG/GOOGL's 'other bets' revenue is more than doubled yoy, though they spent 27% more yoy ($657MM just for Q1!!) for their 'other bets' operation.

ASinclair• 10 years ago

Fiber infrastructure is expensive.

pavs• 10 years ago

Did they invest a lot on fibre infrastructure? There are only in a couple of smallish cities and towns and most of their service deployment is based on existing infrastructure, AFAIK. Maybe I have missed something...

kgwgk• 10 years ago

That is capital spending. They have lost more than $600mn (on $166mn of revenue), without including the $280mn in capex and the $145mn in stock-based compensation.

randomname22• 10 years ago

How did they miss earnings, after buying back $2.3B of stock in Q1?

losty• 10 years ago

The two are unrelated. They could spend all their cash on buybacks and the earnings would be the same.

ucha2• 10 years ago

Earnings are reported per share so stock buybacks are actually a pretty common way to make earnings look better. Of course, it doesn't change the total earnings but the number reported by techcrunch would indeed change.

randomname22• 10 years ago

By earnings I meant EPS

maaku• 10 years ago

Stock buyback is not revenue.

GCA10• 10 years ago

Total market capitalization is roughly $500 billion. So buying back $2.3 billion of shares only shrinks the number of shares by less than 0.5%. That improves EPS by all of about 3 cents. Not enough to matter.

tonfa• 10 years ago

Miss is relative to the analysts expectations.

tyingq2• 10 years ago

"Paid clicks for Google were up 29 percent year-over-year for the first quarter"

I'm amazed this trend continues. Page views almost certainly were NOT up 29% yoy. Meaning that clicks are growing faster than page views, in a big way, every single quarter, for years.

That's what sets the investor expectations, but I don't see a way this trend continues forever. There's only so much room for additional ads, ad optimization, etc. At some point, you're as optimized as you can be, and growth becomes solely driven by pageviews.

reality_hacker• 10 years ago

And Paid clicks on Google websites 38 %

mmanfrin• 10 years ago

I imagine part of it is explained by the fact that when I did a search on a mobile device, nearly 90% of the front fold was ad.

http://i.imgur.com/S5nClc4.png

adevine2• 10 years ago

Yeah, Google has really been expanding the real estate given to paid ads vs natural search results. My guess is they've seen a big shift from natural results to paid results. At some point, though, people will start to believe the value of the search page has suffered.

what_ever• 10 years ago

You should check hotels related search on mobile. Page 1 is ads, scroll to 2nd page and it's Google's own hotel booking module which I would argue is ad as well.

taurath• 10 years ago

I watch users all day click on the top link regardless of whether it says its an ad or not.

arebop• 10 years ago

The overwhelming majority of impressions do not result in clicks, so there is plenty of room for clicks per page view to increase.

tyingq2• 10 years ago

You don't see an end there?

Ad clicks have been outpacing traffic for quite some time now. It wasn't always that way..it used to track the same.

At some point, there's no real estate left to push ads into, or you are as optimized as you can get.

Or, you play that game too far and consumers react in a different way (ad blockers, etc).

tma-12• 10 years ago

Long-term, I am not very bullish on Google/Alphabet. More than 90% of their profits come online advertising, something that can be easily blocked for life with a simple browser extension/plugin. Some worrying figures[1]:

* US ad blocking grew by 48% to reach 45 million active users in 12 months up to June 2015.

* Ad blocking grew by 41% globally in the last 12 months.

* US ad blocking grew by 48% to reach 45 million active users in 12 months up to June 2015.

[1] https://blog.pagefair.com/2015/ad-blocking-report/

magicalist• 10 years ago

More than 90% of their profits come online advertising

actually, it looks like this may be the first quarter where their non-advertising revenue was over 10% of their total revenue. $2,071 out of $20,091 (in millions). Growing 24% YoY isn't too shabby, either.

rtpg• 10 years ago

that's about 1.8% monthly growth

sidko• 10 years ago

Because search tends to have a significantly higher margin than Google's other offerings (say Cloud), even if non-advertising revenue reaches 10% of total revenue, the non-advertising profit is below 10%

eva19842• 10 years ago

And...if YTB starts anti-ad-block because they are desperate...what do you think?

adevine2• 10 years ago

But the majority of that online advertising income comes from ads on their own search results pages, not from adsense ads.

eru6• 10 years ago

One can still block those. My adblocker does by default.

tma-12• 10 years ago

Ad blockers block those by default.

rhino369• 10 years ago

More than 90% of their profits come online advertising, something that can be easily blocked for life with a simple browser extension/plugin.

If I were Tim Cook, I'd be at least a little tempted to update iOS and OSX to include adblocking on by default.

Steko• 10 years ago

Google would have no problem forcing ads into the main SERP hose if it came to Microsoft or Apple blocking by default.

r00fus• 10 years ago

Isn't that what happened in iOS9 with the Safari Content Blocker framework?

bobdole1234• 10 years ago

The Google infrastructure now powers a chunk of icloud.

I don't see apple killing the revenue stream that feeds their bottomless pool of capacity.

SpaceX_Tech• 10 years ago

Why? Do Apple and Google really have that adversarial a relationship? It seems like a small subset of their respective fans are the only ones that actually want a "war" between the two.

Apple is the most profitable company in the world and consistently takes almost all of the profit in the smartphone industry. They also make a large portion of the profits in the PC world despite their relatively meager market share. Does Apple really want to expand into the sub $200, or even $100, smartphone market? Unless they do, I don't even really see Google/Android as their competitor.

I know it can be short sighted to base things on personal anecdotes, but while I don't use an iPhone myself, almost all of my friends do and they extensively use Google products ranging from Gmail, Maps, Photos and search.

Apple seems to have the best of both worlds in the current situation. They dominate the high end profitable hardware market and their users still get to benefit from Google products if they so choose. I'm not convinced that Apple would be better off if Google disappeared. Replicating all those services will be expensive.

tommoor• 10 years ago

They seem to be doing a pretty good job of diversifying? The profits haven't caught up yet, granted, but this is a company with many of the smartest people in the world working on future game-changing tech and sinking a ton of money into research. Still bullish here :)

adventured4• 10 years ago

They are doing a poor job of diversifying. Those side businesses are producing a small amount of revenue. It would be one thing if the profits hadn't caught up, the real problem is there isn't much in the way of sales to begin with. I see no example business of theirs that will get them even moderately diversified off of online advertising in the next five years. And I'm not speaking of technology Alphabet is messing with - what business are they looking to capture in self-driving cars for example? I see no example of an actual business there so far.

Granted, this only matters in the scenario in which their online advertising business contracts meaningfully (whether due to ad-blockers or otherwise). If ad-blockers gain usage at an accelerating pace, Google is unlikely to have much time to diversify (and that takes a long time when you're talking $20b in sales to off-set).

So far Google has been flaky, disorganized and unprincipled about developing other real businesses. They should have a dramatically larger cloud services business for example, but they handled that incompetently and ceded years and tons of ground to AWS.

Essentially Google has to spend the next several years praying that ad-blockers don't rapidly bring their spigot of online ad dollars to an end. That's a real bad position to have put yourself in if you're a $536 billion corporation.

maxxxxx2• 10 years ago

It just shows that the smartest people in the world working on cool tech doesn't necessarily mean business success. It's a different kind of smarts.

bpodgursky• 10 years ago

If adblocking becomes a serious problem for Google, they can (and will) block the relevant extensions in Chrome.

Also, mobile chrome (increasingly dominant worldwide) doesn't, and won't, have adblocking.

Yes, I'm ignoring numerically insignificant installs like rooted hosts redirects, firefox mobile, opera, etc. Those aren't going to impact revenue.

mwfunk• 10 years ago

That's also not good for them, because it grants a potentially huge advantage to their competitors who do support adblocking. That may or may not be a long term big deal, but it's a risk.

patmcc• 10 years ago

That's an excellent way to get people to switch away from Chrome. I love Chrome, use it all the time, but if I can't have any adblocking? No thanks.

jfoster3• 10 years ago

Exactly. The main "real" concern would be iOS. Even that can be handled, though.

rdtsc• 10 years ago

What can they do for Firefox then? I am already using, not because of ads, just because I like it better. But imagine as soon as they do something like peole will immediately switch their browsers.

tcbawo• 10 years ago

You can't block ads with streaming services or other captive audiences. They seen well positioned in this regard.

skrowl• 10 years ago

It's also difficult to block in app ads without root / jailbreak

bigdubs• 10 years ago

UBlock origin blocks youtube ads, if that's what you were referring to by "streaming services".

lotu2• 10 years ago

This is part of why so much is going in app it is much harder to block ads in apps.

wstrange2• 10 years ago

The more people that use ad blocking, the more important directed search becomes. Which Google is pretty good at.

I don't think ad blocking represents armageddon for Google.

jacobwcarlson• 10 years ago

https://blog.pagefair.com/2015/ad-blocking-report/

Can anyone shed light on the relatively widespread adoption of ad blocking software in Poland and Greece? A cursory search doesn't indicate any particular bandwidth or cost constraints.

disgruntledphd2• 10 years ago

My guess is TV rights. All of the streaming sites have a very heavy ad-load, and are nigh-unusable without an ad-blocker. Poland and Greece probably aren't particularly profitable markets, so translations/releases may be delayed, creating demand for the streaming services and as a consequence pushing up ad-blocking.

albasha• 10 years ago

Good luck blocking mobile ads :/

Unlike desktop, they control Android and its ecosystem. They just won't make it easy to block them.

bitmapbrother2• 10 years ago

Amusing to say the least. They made nearly 2 Billion more than Microsoft in income this quarter and their Play store made more than 2 Billion in revenue. Ad blocking isn't really a concern. When that day does materialize then Google will simply circumvent them.

jfoster3• 10 years ago

They can definitely have more of an effect against ad blocking if they choose to:

- Disable ad blocking in Chrome

- Block browsers blocking ads from Google search

- Release tools for AdSense that block content when ad blockers are detected

The downside to this would be in the backlash that would follow, but they will resort to these measures if ever their business is truly threatened by ad blocking.

WWKong2• 10 years ago

Does ad blocking work with search ads and YouTube ads?

ChristianBundy• 10 years ago

Yep.

vonklaus• 10 years ago

If anyone knows how the numbers break down, it is google. Luckily, they own 3-10 working backups of the entire user facing internet and pretty key infrastructure that the internet depends on. So, if in the event that people start blocking advertisements they would probably:

Restructure as a Meta Company balkanizing google search to limit anti-trust lawsuits.
Allow other sectors of the company to start using that data to create businesses.
Invest heavily into infrastructure and try to promote google as the main infrastructure for developers to build on. Probably really engage the community by doing open source projects for data analysis & machine learning (their core competency) and provide tutorials, data hosting and google service integration so developers get into their ecosystem.
continue investing in Android for the 1.3 Billion people using
continue delivering chrome for the 40% internet users using it
Consider monetizing the nearly 1 Billion active gmail users.

However, if they were really smart, they would release eyeglasses that cost 2-4000 dollars and have less computing power than a calculator. This will be a gamechanger.

tamana2• 10 years ago

Google makes their money primarily from users clicking on ads they want to follow. Ad blockers don't affect that. Not everyone hates ads.

meritt• 10 years ago

You understand the online advertising encompasses vastly more than the standard IAB Ad Units your plugins block, right? Those barely scratch the surface of the behemoth that lies beneath. There's a reason the vast majority of display ads are so shitty these days: it's because only the bottom of the barrel still utilize them.

sspiff• 10 years ago

Figure 1 and 3 are duplicates.

coldtea4• 10 years ago

Long-term, I am not very bullish on Google/Alphabet. More than 90% of their profits come online advertising, something that can be easily blocked for life with a simple browser extension/plugin. Some worrying figures

And yet frequently the press glorifies Google's "innovation" and is bullish on Apple, that has like 4-5 different sources of income (the PCs, the phone, the tablet, the watch, the tv, the cloud services, the app store, the music store) -- with more than one of them earning more profits than the whole of Alphabet put together.

bitmapbrother2• 10 years ago

Let's be realistic. The only real profitable revenue stream for Apple is the phone and app store.

with more than one of them earning more profits than the whole of Alphabet put together.

Which would those be with the exception of the phone? As for those other other revenue streams you mentioned - they're just a blip on the radar (tvOS and cloud - really?)

jhulla• 10 years ago

Alphabet isn't the only big corp down after hours today.

As of now:

Microsoft - down 5%. http://www.marketwatch.com/investing/stock/msft

Visa - down 4% http://www.marketwatch.com/investing/stock/v

Starbux - down 4% http://www.marketwatch.com/investing/stock/sbux

In each case, the cause is different. But one thing is common, trailing PE ratios of all four are high compared to historical norms. High PE ratios are maintained with high growth in revenue, earnings and margins. Back off even a bit and the invisible hand smacks you in the face.

not_that_noob• 10 years ago

Upvoted for the funny Adam Smith reference.

dendory• 10 years ago

It's interesting to see how Google, a company that has arguably some of the best engineers in the world and the most brilliant technologists, still only makes a decent revenue on online ads. All of their other startups are losing money.

acchow• 10 years ago

Google had $75 billion in revenue in 2015 with $16 billion net income. They are a 17 year old company. I think that's a lot better than "decent".

ryanobjc• 10 years ago

Why, you're right - somehow another $20b a quarter business has eluded them! They're normally just all over the place, I have a few in my couch at home. So weird.

And yeah, all those other 'bets' - losing money. New things are usually immediately hugely profitable, and even thinking about trying something that doesnt make huge bank right out the gate makes 0 sense.

This is in stark contrast to winning companies such as Microsoft, Intel, AT&T, Exxon (and any other oil company), which have all figured out how to get those $80b/year businesses bootstrapped, not to mention who have significantly diversified their revenue from their original business lines!

adventured4• 10 years ago

not to mention who have significantly diversified their revenue from their original business lines

Both Microsoft and Intel very successfully diversified their businesses at various times. I'm not sure you could have named two other tech giants that did a better job of diversifying away from their original product lines (which was not Windows for Microsoft, and was not microprocessors for Intel).

Microsoft didn't start out as an operating system company, they diversified into that business. Then they successfully diversified all over again. Windows dominated Microsoft's business for about 15-18 years. That's no longer the case. All profit from Windows could go away tomorrow and they would still be earning around $15 billion per year in net income. They're now a heavily diversified technology conglomerate.

Intel was a business initially built on memory chips, which were their first products. They did an extremely good job of diversifying; had they not they would have disappeared with the memory business.

"While Intel created the first commercially available microprocessor (Intel 4004) in 1971 and one of the first microcomputers in 1972, by the early 1980s its business was dominated by dynamic random-access memory chips."

https://en.wikipedia.org/wiki/Intel

MikeHolman• 10 years ago

I assume you're being sarcastic, but Microsoft has done a pretty good job diversifying. Office, Windows, Azure, SQL, Surface, Xbox, even Bing contribute significantly to the bottom line.

educar4• 10 years ago

So, Google makes fantastic products. Much of our online interaction involves Google in some way or the other. And the only way these guys have figured to make money is ads.

Why can't they sell products and be like an Apple, Oracle, Microsoft. I am guessing it's too much work to grow in such a massive pace without ads. Ads are a marketers/sales persons dream and these marketers are very likely to spend money.

This ad economy is so very sad and it's killed many nice things. Everyone is just giving out things for free and nobody wants to pay for anything thanks to this whole ad economy. News reporting has gone to the dogs because nobody wants to pay. Email will no see decent progress thanks to gmail.

Anyway, I feel Google will be a much better company if it can get rid of dependence on ads but I guess it's too late now since it has to answer to shareholders and show never ending growth.

pmyjavec4• 10 years ago

Agreed, I actually moved to Fastmail recently and it costs me annually but the lack of being the product and actually a customer feels nice.

nightski2• 10 years ago

Another customer of Fastmail. It has served my well and overall has been a much better experience than Google Apps.

petra3• 10 years ago

The problem is not that nobody wants to pay, but that in the digital economy, content and many software products are relatively easy to copy. And once you got that, you know that the cheapest guy will win and take most of your customers, so why not be the cheapest guy, especially if it pays very well ?

The other option is to make your product hard to copy by network effects or data collection, but again, here it's natural for the cheapest guy to win.

educar4• 10 years ago

I don't think it's easy to copy. I can understand that the search market is ad driven. But they have put ads in everything now. Why does gmail have ads? It's not easily copyable and people will take years to build a decent gmail competitor.

And good products that didn't have ads like google reader get shutdown :/

kumarm• 10 years ago

>Email will no see decent progress thanks to gmail.

I remember how great email was before GMail:

1. Every few days I had delete emails so that I can get new email.

2. Delete sent mail immediately to make space for new emails.

3. More than 50% of emails received are spam.

Yeah right GMail was one that stopped progress of email :)

educar4• 10 years ago

As I noted, Google makes great products including gmail. My point was that with gmail being free and good enough, there is nobody to compete with gmail. In 2016, nobody will start an email company even though there are lots of advancements that can be made.

secfirstmd• 10 years ago

Future progress though...may be very different....security and privacy considerations are hardly a good thing for GMail as a revenue source...

baudehlo• 10 years ago

You honestly had really shitty spam blocking before. That's all. Nothing more. They didn't invent spam free email.

My morning routine involves marking at least ten emails as spam on my gmail account. They really aren't the be all and end all of spam blocking.

My non-gmail account (on an address that has been around for almost a decade before gmail existed) running a more modern anti spam solution, not nearly as bad.

avar• 10 years ago

    Why can't they sell products and be
    like an Apple, Oracle, Microsoft.

Econ 101 on HN again.

Aside from what Google's doing. You're assuming that the value someone personally derives from using something is the value other people derive from pushing it to them.

I.e. you have ads on Google, some of which cost >$10. To the companies paying for them that makes sense, because they might be selling a product that costs $500-1000, with say 10% conversion.

But a user is never going to be persuaded to pay >$10 simply to click a link.

So yes, there are some things Google does for free that they could be selling, but a) they may not be easy to sell directly b) even if people bought them it wouldn't make up the difference they make from ads, because the value isn't on the consumer side, it's on the advertiser's side.

educar4• 10 years ago

Nobody was questioning the economics, it's obvious why they do what they do. I was questioning the kind of company Google wants to be. It can be greater (in my eyes anyway). For example, Apple can still generate phenomenal profits just on the basis of their product and doesn't need to resort to putting ads everywhere.

mediocrejoker• 10 years ago

Are the companies paying $10 per click? Otherwise I'm not sure you're making the appropriate comparison.

rsync3• 10 years ago

"Anyway, I feel Google will be a much better company if it can get rid of dependence on ads"

Do you feel like the NFL will be a better company once it rids itself of that pesky "football" dependence ?

Will McDonalds finally break free of the hamburger racket and flourish as a company ?

Google isn't some company that just happens to make a bunch of money from ads - they are an advertising company. Period. The end. Online ads stemming from search results is the thing they do.

It sure sounds neat to bootstrap a world-beating conglomerate and dominate all market spheres with your plexes full of big brains, but it's not going to happen.

It's not going to happen.

They will live and die with the search ads. They will not disrupt the car industry. They will not launch rockets to mars. They will not solve homelessness.

tariqali34• 10 years ago

While I upvoted you, it is still possible to pivot to another industry. Nintendo after all started out by selling playing cards.

pmyjavec4• 10 years ago

I wonder if other search engines are also starting to catch up?

I've been using DuckDuckGo for a while now and there was a time when it felt like I was missing out; However the product has improved dramatically of late and forget I'm no longer using Google.

petra3• 10 years ago

Its hard to believe, because tracking and especially tracking over search history both over the immediate term and the somewhat longer term is exactly what enables Google to surface such good results.

pmyjavec4• 10 years ago

I understand the theory behind all that but I'm preferring the results DDG is now giving me. The bangs feature is also really nice.

I actually used DuckDuckGo about a year ago but I went back to Google after a month as the results felt crap, but I gave it a try recently and haven't looked back.

I haven't felt this was since leaving Altavista!

mc808• 10 years ago

I've disabled search history and Google still tends to give me the most relevant results. Perhaps they also do some customization based on session cookie or something (I know YouTube does for recommendations) and I'm pretty sure IP location still plays a role. But I think it's mainly that I know how to ask Google for what I want, not that Google knows what I want necessarily. I still give DDG and Bing a chance once in a while, just in case, but old habits die hard.

jmarbach• 10 years ago

The current search market is ~4.6 billion searches per day. Google owns about 75% of the market, with ~3.5 billion searches per day. DuckDuckGo has about 12 million searches per day, ~0.25% of the market. Bing/Yahoo are the other big players in the search market, with between ~10-12% each.

garysieling• 10 years ago

I get 70% as many readers to my blog from duckduckgo as bing (and 3x yahoo), so I imagine they are well positioned to get a boost from tech people recommending it to their families.

dimino• 10 years ago

Oh no, they only brought in the GDP of the country of Nepal.

Fire everyone.

Alphabet slides 5% after missing earnings expectations on revenue of $20.3B

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