By Arjun Panchadar and Paresh Dave
Google failed to reap the benefits of a strong economy that strengthened rivals in the first quarter as the leading Internet advertising company faced more competition in its hardware and research business and suffered from disruptive changes on YouTube.
Shares of Alphabet fell 7 percent after hours after closing 1.5 percent to a record $ 1,296.20.
Alfabet's chief financial officer, Ruth Porat, told analysts that the company is experimenting with its advertising products as users grow dependent on mobile devices and are therefore seeing the volatility of revenue. Sales of Google's Pixel phones also struggled amid intense competition in the premium smartphone market, she said.
Leading competitors for advertising spending, such as Facebook Inc (NASDAQ :), Snap Inc (NYSE :), Amazon.com Inc (NASDAQ 🙂 and Twitter Inc (NYSE 🙂 all reported last week's quarterly revenue above or in line with analysts expectations.
Alphabet said its quarterly revenue rose 17 percent from a year earlier to $ 36.3 billion, compared with the Wall Street average estimate of $ 37.3 billion, according to Refinitiv's IBES data.
The 17% increase was the slowest in three years and compared to 26% in the same quarter of the previous year.
Facebook, the second-largest Internet advertising company, posted a 26 percent growth to $ 15.1 billion in quarterly results last week.
Alphabet said paid clicks fell 9 percent compared to the previous quarter.
Porat also said slower revenue growth reflected currency effects and a strong 2018. Revenue rose 19% in the quarter in constant currency.
Quarterly costs increased nearly the same as revenue, up 16.5 percent from last year to $ 29.7 billion.
Spending rose faster than revenue for much of the past two years for some investors amid tightening oversight over the company's privacy practices and efforts to restrict advertising on potentially offensive content.
But positive macroeconomic signals have given them reason to believe the company's ad business is healthy. The shares rose 11.9% between the last announcement of results and Monday.
About 84.5% of revenue, up from 85.5% a year ago, came from Google's ad business, which sells links, banners and ads on its own sites and applications and those of partners.
Google's 3 billion users help make it the world's largest seller of Internet ads, capturing nearly a third of all revenue, according to research firm EMarketer. Facebook is at about 20%.
Capital spending on the alphabet fell 36 percent compared to last year to $ 4.6 billion. Growth has moderated since the last quarter, as Alphabet had warned in February.
Alphabet said its spending increases are justified, with huge spending going to offices, data centers and artificial intelligence capabilities in line with the expected demand for its services.
Still, the company has not yet had a significant revenue from its spending on self-employed ventures and its AI assistant, Google Assistant.
Newer units that are producing noticeable revenue lagged behind in market share, including Google's consolidated hardware unit and Google Cloud, which sells computing and data storage services to businesses.
And Google's costs could jump further if governments globally followed the growing threats to control the applications' ability to track users for advertising purposes. Other regulators have argued forcing companies to intensify monitoring of user content.
Alphabet shares gained 23 percent this year, the lowest growth among the group called FAANG, with Facebook at 48 percent, Netflix at 39 percent, Apple at 30 percent, Amazon at 29 percent, and Amazon at 29 percent.
Spending on the Alphabet included a fine of $ 1.7 billion from the European Commission for placing anti-competitive advertising restrictions on sites using its searches.
Revenue was also driven by a change in the assessment of Alphabet's share in the hitch-sharing application Lyft Inc (NASDAQ :), which held an IPO a month ago. The alphabet may have similar gains later this year when other highly valued startups, such as Uber Technologies and software company Slack Technologies, make their public debut.
Including the European fine, net profit was $ 6.7 billion, or $ 9.50 per share, compared with the analysts' average estimate of $ 7.3 billion, or $ 10.48 per share . Profits excluding the fine were $ 8.3 billion, or $ 11.90 per share, beating analysts' estimates of $ 10.61 per share for adjusted earnings.
The operating margin excluding the fine was 23%, up from 22% in the same period last year.