Alphabet Inc.’s first-quarter revenue fell short of analysts’ estimates, sparking concern that advertisers are shifting some spending to digital rivals. Shares fell more than 6% in extended trading after Google’s parent company posted the results.
Sales came in at $29.5 billion, excluding payments to distribution partners, Alphabet said Monday. Wall Street expected $30.04 billion, according to the average of analysts’ estimates compiled by Bloomberg.
Revenue from Google advertising rose 15% from a year earlier. That growth was slower than the 24% year-over-year growth in last year’s first quarter. The disappointing sales were also a stark contrast to scandal-plagued Facebook Inc., which last week reported a 26% jump in ad sales.
Net income was $6.66 billion, or $9.50 a share, down from $9.4 billion, or $13.33 a share, in the year-earlier quarter, the Mountain View, Calif., company said. The latest results were dented by a $1.7-billion European Commission fine for antitrust violations. Excluding that, profit was $11.90 a share.
Google is usually the first place consumers go when searching for new products, which enables the internet giant to charge premium prices to retailers and other advertisers looking to reach customers online. But increasingly, people have been going straight to Amazon.com Inc. to hunt for products, and Amazon has been grabbing a larger share of the digital ad market — chipping away at Google’s lead.
Google Chief Financial Officer Ruth Porat blamed some of the growth decline on currency fluctuations. In an interview with Bloomberg TV, she also shrugged off Amazon’s foray into advertising and said there’s still lots of room for growth for all digital ad companies because so much marketing money is still spent offline.
“Nearly half of ad budgets in the U.S. are still spent offline,” Porat said. “Ninety percent of commerce in the U.S. is offline, and we are focused on digital playing a big role in that.”
The number of clicks on Google ads rose 39% in the first quarter. That was the lowest year-over-year growth since 2016. The price, or cost, per click, fell 19%.
Ad revenue growth was solid on mobile but barely present on desktop and tablets, according to data gathered by digital marketing agency Merkle. That contributed to the overall slowdown, said Andy Taylor, Merkle’s associate director of research.
“It’s unclear how Google might be able to ramp growth back up on these device types,” he said. “A lot of the low-hanging fruit has long since been plucked.”
At the same time, Google is spending heavily to moderate videos on YouTube and to build an enterprise sales team for its cloud business. The company doesn’t break out YouTube and cloud revenue, but the two are important sources of future growth. Amazon and Microsoft Corp. are well ahead of Google in the cloud market. Google’s other revenue, which includes the cloud business, rose 25% to $5.45 billion.
Alphabet’s operating margin, a closely watched profit metric, was 23%, excluding the antitrust fine. Google capital expenditures dropped sharply in the quarter, in part because of a jump in real-estate spending in the year-earlier period.
Amazon’s digital advertising franchise has grown into the third largest in the United States, trailing only Google and Facebook, EMarketer estimates. First-quarter sales in Amazon’s “other” segment, which is mostly advertising, increased 34% to $2.72 billion, the online retailer said last week.
Alphabet shares hit a record earlier Monday and closed at $1,296.20, up 24% this year. In extended trading, the shares fell 6.7%.