Alphabet Losing Ground To Amazon

Photo credit: Thomas Hawk/Flickr.com.

Last week was a bad week for Alphabet (Nasdaq: GOOG) stock. Its disappointing results coupled with the market’s unease saw the stock fall to 6-month low levels after the results announcement. The investors are also worried about Amazon’s growing strength within the advertising segment.

Alphabet’s Financials

Alphabet’s third quarter revenues excluding Traffic Acquisition Costs grew 22% over the year to $27.16 billion, missing the Street’s forecast of $27.32 billion. Gross revenues grew 22% to $33.7 billion. Adjusted EPS grew 37% over the year to $13.06 and was significantly better than the market’s forecast of $10.54 for the quarter as Alphabet continued to rein in costs.

By segment, Google’s advertising revenue grew 20% over the year to $28.95 billion, driven by a 22% growth from Google properties and a 13% increase from network members’ sites. During the quarter, total traffic acquisition costs rose 20% to $6.58 billion. Google’s non-advertising revenue increased 29% over the year to $4.64 billion, led by Cloud and Play. Revenues from the Other Bets segment were up 25% over the year to $146 million.

Among operating metrics, paid clicks on Google properties jumped 62%, and cost per click fell 28% over the year. Within the non-Google properties, impressions on network members’ sites grew 1%, and cost per impression rose 11%.

Alphabet ended the quarter with a massive $106 billion in cash and equivalents on its balance sheet.

Alphabet’s Growth Drivers

Alphabet is counting on growth across multiple areas to drive its revenues. It is launching its own hardware, Made by Google, that integrates latest advances in software, hardware, and AI. The new hardware lineup for the upcoming holiday season includes the Pixel 3, Google Home Hub, and the Pixel Slate tablet. The Pixel 3 uses AI to create a best-in-class camera and comes with features like Top Shot so that users don’t miss a shot, Night Sight to help uses take good pictures even in bad light, and a custom security chip. Google Home Hub is its first smart speaker with a screen that shows the users information such as their morning commute and provides a handsfree control of the smartphone. Google is seeing significant traction among the users for its devices. It does not disclose the number of users the services have, but claims that the Daily active users of its Google Home devices have grown by five times in the last year alone.

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