While Alphabet Inc’s Google has dominated the online advertisement market for almost the entirety of its existence, its first-quarter earnings report suggests that competitors might be nipping at its heels.
Google’s advertising revenue, its key moneymaker, grew by 15 percent to US$30.7 billion — slower than investors had hoped.
Its digital advertisement rivals Facebook Inc and Amazon.com Inc both reported strong earnings last week.
Photo: Bloomberg
Alphabet executives on Monday deflected concerns of growing competition on a conference call with analysts, instead suggesting that fluctuating currency rates and changes to Google ad products during the quarter led to the slowdown.
The online advertisement industry is also still in a years-long shift to smartphone and tablet advertisements and away from ones aimed at PC users. Advertisements for mobile devices bring in less money.
Still, the results sparked concerns that Google’s enormously profitable advertising machine might be starting to sputter.
Some analysts suggested that it is a signal that Google might need to diversify its business more quickly.
“Does this put more pressure on Google to make more aggressive bets on cloud?” Wedbush Securities Inc analyst Dan Ives asked.
Google executives during the call highlighted the company’s cloud computing business as one of its fastest-growing segments.
However, the cloud accounts for only a small slice of Alphabet’s overall revenue.
The company reported US$5.4 billion in “other” revenue, which includes cloud, hardware and Google Play store purchases.
Hardware sales also slowed during the quarter for the Pixel smartphone, Google chief financial officer Ruth Porat said during the call, reflecting a broader industry slowdown in smartphone sales.
Alphabet reported a first-quarter profit of US$8.3 billion, down 6 percent from US$8.9 billion a year earlier. Profit amounted to US$11.90 per share, well above Wall Street estimates of US$10.60.
That figure does not include an expected charge of US$1.7 billion to account for an EU antitrust fine.
The fine was imposed in March for anti-competitive practices in Google’s advertising business, referring to a specific exclusivity practice Google now says it has ended.
Google and Facebook, along with other Internet companies, are feeling rising heat from regulatory bodies around the world as people and governments question their privacy practices.
Some regulators have expressed concern that the largest companies are so big that they are stifling competition.
Including the fine, Alphabet’s profit of US$6.7 billion fell short of analyst estimates. Excluding advertising commissions that Google pays to customers, Alphabet’s overall revenue was US$29.5 billion — also falling short of the US$30 billion analysts were expecting.
Alphabet also reported widening losses in its “Other Bets” category — a broad segment that includes experimental ventures such as self-driving vehicle business Waymo and Internet-balloon subsidiary Loon.
Losses grew to US$868 million from US$571 million a year earlier.
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