Alphabet Stock Plunges 7% After-Hours On Q1 Revenue Slowdown

Alphabet Inc. saw its stock tumble 7.25 percent to $1,202.20 in after-hours trading after investors expressed dismay at its lower revenue for the first quarter of the year. The drop erased more than $60 billion from Alphabet’s market cap.

Analysts said Alphabet fell short of expectations with all of its major sales categories reporting slightly worse results than expected in Q1. Compounding Alphabet’s woes is the $1.7 billion fine it will have to pay European regulators for its anti-competitive advertising behavior.

Google’s parent company reported Q1 earnings of $6.66 billion ($9.50 a share) on revenue of $29.48 billion year-on-year after removing traffic-acquisition costs (TAC). It posted a profit of $13.33 a share on ex-TAC sales of $24.86 billion a year ago.

TAC represents the amount Google pays to websites and mobile partners to bring consumers to its platform.

Alphabet’s earnings would have been $11.90 a share if it weren’t for the $1.7 billion fine. Analysts on average expected ex-TAC sales of $30.04 billion and earnings of $10.60 a share, according to FactSet.

TAC rose to $6.86 billion in the first quarter but declined as a percentage of revenue to 22 percent, down 200 basis points from the same quarter last year.

Paid clicks on Google properties such as Google and YouTube rose by 39 percent, but cost-per-click (CPC) on Google properties fell 19 percent.

Analysts said Google is seeing decelerating growth after consistently growing at 20 percent or more over past quarters. Q1 revenue increased 17 percent compared to the growth of 28 percent a year earlier, while ad sales growth slowed to 15 percent from 24 percent a year ago.

The slowdown also extended to paid clicks on Google properties, which grew only 39 percent year-on-year. That’s a large drop from the fourth quarter of 2018 where growth surged 66 percent and the third quarter (up 62 percent). Analysts said this means Google properties are failing to boost traffic volumes fast enough to compensate for declines in advertising sales.

Most of the deceleration is related to YouTube, which “represents the vast majority of total clicks,” explained Alphabet CFO Ruth Porat.

During the earnings call, Google reaffirmed that much of its future growth will come from the emerging areas of its business as CPCs drop. Google’s hardware and cloud businesses saw a 25 percent increase to $5.45 billion. Google expects a lot from its cloud.

Thomas Kurian, CEO of Google’s cloud group, said in February that Google’s cloud business will “accelerate the growth even faster than we have to date.”

On the upside, Alphabet stands to make billions of dollars from its investments in two of biggest tech IPOs this year: Uber and Lyft. It owns 5 percent of each company.