Google Shares Fall on Revenue Miss-Earnings Live Blog

Eric Jhonsa

Alphabet GOOGL shares were falling after the close on Monday after the tech giant missed revenue estimates for the fourth quarter.

The parent company of Google reported revenue of $46.08 billion versus a $46.93 billion consensus while EPS of $15.35 beat a $12.49 consensus. Shares were declining 3.3% to $1,437.00 in after-hours trading.

Notably, Alphabet also broke out YouTube ad revenues ($4.72 billion) and Google Cloud revenues ($2.61 billion) for the first time. Monday's earnings report was the first since Sundar Pichai was elevated from CEO of Google to the CEO of Alphabet. 

Eric Jhonsa, TheStreet and Real Money's tech columnist, is analyzing Alphabet's fourth quarter earnings report, as well as its call with analysts, scheduled for 5:00 p.m. E.T.

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Eric Jhonsa
Eric Jhonsa

Editor

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet's call has ended. Class A and C shares are each down about 4.5% after hours after Alphabet missed Q4 revenue estimates, in large part (though not entirely) due to lower hardware sales. EPS beat estimates with the help of a low tax rate, investment gains and somewhat slower expense growth.

Alphabet, which was posting its first earnings report since Sundar Pichai became Alphabet CEO, also broke out YouTube and the Google Cloud unit's revenue for the first time. And the company made a host of additional disclosures on its call about various businesses.

Eric Jhonsa
Eric Jhonsa

Editor

Question about commerce trends, and one about GCP growth.

Pichai: We see a lot of opportunities to improve commerce experiences, deepen merchant partnerships. Recently hired Bill Ready (PayPal's former COO). Want to make it easier for people to conduct transactions.

Regarding GCP, says Google is seeing strong traction with data and analytics services. Notes they're benefiting from Google's technology strengths in the space.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Google's margin strength, and how much of that was due to lower hardware sales vs. improvement elsewhere. Also one about what % of AdWords advertisers are just buying search ads vs. also buying on YouTube.

Porat: There were a lot of discrete items in Q4 2018, that made for easier margin comps. Also, hardware costs were lower. 2020 headcount growth will be boosted by the FitBit acquisition and moving some activities in-house.

Says there's isn't much to add regarding the last question.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: We'll continue to evaluate Other Bets, and see where it makes sense to bring in outside partners. The Alphabet structure gives us "a more flexible framework" to give Other Bets companies some independence, while continuing to have access to Google's resources.

Eric Jhonsa
Eric Jhonsa

Editor

Question about holiday ad sales, and how much of the ad business now involves solutions such as Smart Bidding.

Porat says there was nothing out of the ordinary regarding holiday performance. Pichai says there's significant traction for newer, AI-powered, search solutions, but doesn't share any numbers.

Eric Jhonsa
Eric Jhonsa

Editor

Question about YouTube monetization. With ~2B users, you appear to produce $7-$8 per user annually. Do you see room to grow that? Also a question about cloud deals.

Pichai: We do see a lot of room to grow YouTube. Opportunities to create new experiences in areas such as commerce. In cloud, we're increasingly doing much larger deals. Often talking with customers across multiple businesses.

Eric Jhonsa
Eric Jhonsa

Editor

Question about YouTube's revenue mix, and one about the impact of regulatory changes on revenue growth.

Porat: Brand ads remain the largest part of YouTube's ad business, but direct response ads growing strongly.

Pichai: Regulatory changes are something we always take a look at. We work on them early. There's nothing new to call out this quarter.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: We look at ways to bring teams together and break down employee silos. Examples include creating a core infrastructure team and a partnerships team that can form partnerships with third parties across multiple Google businesses (recent Activision partnership an example).

Eric Jhonsa
Eric Jhonsa

Editor

Question about North American Q4 growth, which was relatively slow. Facebook also had some Q4 challenges in North America. Were there any specific issues?

Porat notes lower hardware sales affected North American revenue. Says there's "not much more to call out" beyond that.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Google's payment efforts, and one about YouTube engagement.

Pichai: People visit Google properties to transact in addition to discover and learn about products. We've had "a lot of traction" with our payments product over last 18 months. Learned a lot from success in India.

Regarding YouTube, says user metrics are very strong, and that it's now seeing growth in "newer verticals."

Eric Jhonsa
Eric Jhonsa

Editor

Porat goes over Google's broader investment philosophy. Looking at businesses on a case-by-case basis, finding ways to be more efficient, investing for the long haul, etc.

Eric Jhonsa
Eric Jhonsa

Editor

Question about cloud deals.

Pichai: A lot of times, companies are looking for a technology partner. Not just looking to partner with Google Cloud, but with Google overall. Over time, Google's investments in industry-specific AI solutions should be a differentiator as well.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai and Porat reiterate that they see ample opportunity to grow ad revenue, and plan to invest strongly in various business. Also reiterate that there will be quarterly variability in how ad sales grow, as Google makes product decisions for the long-term.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about GCP margins.

Porat: We're really pleased with GCP's momentum. The cloud market is very competitive. We've accelerated our go-to-market investments, also investing in new GCP services.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Relative to 2019, 2020 capex will be more skewed towards servers than data center construction (good news for hardware and chip suppliers).

Eric Jhonsa
Eric Jhonsa

Editor

Porat: 2020's headcount growth will be slightly higher than 2019's.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding Other Bets, she says that Alphabet is sharpening its focus on metrics and milestones on which capital allocation is determine, and (notably) evaluating where external capital would make sense.

Eric Jhonsa
Eric Jhonsa

Editor

Porat reiterates that Google sees a variety of growth opportunities across search, YouTube, cloud, etc., and plans to keep investing aggressively.

Eric Jhonsa
Eric Jhonsa

Editor

One other YouTube disclosure: Its non-advertising revenue is now on a $3B annual run rate.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: We expect forex headwinds to continue in Q1.

Eric Jhonsa
Eric Jhonsa

Editor

Google Play transaction revenue said to benefit from strong growth in active buyers.

Eric Jhonsa
Eric Jhonsa

Editor

Porat suggests GCP's Q4 growth was broad-based, covering both infrastructure and data platform services and a variety of customers. Says Google saw strong uptake for its Anthos hybrid cloud platform.

Eric Jhonsa
Eric Jhonsa

Editor

Notes YouTube saw strong ad growth for direct response ads, which aim to drive activity such as e-commerce purchases and app installs, along with continued momentum for brand ads.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Google Search and Other's growth reflects ongoing momentum for both mobile and desktop (PC) ads.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Q4's near-0% tax rate was due to discrete items, including the resolution of multi-year audits.

Eric Jhonsa
Eric Jhonsa

Editor

Reiterates that Google is aggressively hiring engineering and sales talent for Google Cloud.

Eric Jhonsa
Eric Jhonsa

Editor

Porat notes that outside of TAC and data center depreciation expenses, Google's cost of revenue was impacted by high YouTube content costs. This was partly offset by lower costs associated with hardware sales.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Our Q4 results were driven by search, YouTube and Google Cloud, offset by a decline in hardware revenue.

Eric Jhonsa
Eric Jhonsa

Editor

CFO Ruth Porat now talking.

Eric Jhonsa
Eric Jhonsa

Editor

The Nest Mini and Nest Hub Max are said to have sold well during the holidays. With total hardware sales having been under pressure in Q4, Pixel sales may have been soft.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai discloses that developers have cumulatively earned over $80B via Google Play, and that Play has over 2B MAUs.

Eric Jhonsa
Eric Jhonsa

Editor

Says the number of $50M+ Google Cloud deals more than doubled annually.

Eric Jhonsa
Eric Jhonsa

Editor

Says there was 4x growth in the number of merchants participating in Google's Shopping Actions program, which allows consumers to make purchases without leaving Google's websites/apps.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai notes Google's BERT AI-based natural-language processing technology is now used to handle more than 10% of searches.

Eric Jhonsa
Eric Jhonsa

Editor

Says many Other Bets businesses have reached a point where it makes sense for them to partner with third parties. Highlights Waymo's progress, says it's handling over 1,500 riders in the Phoenix metro area.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai now once more going over Google's broad AI/ML investments. Says Alphabet will continue taking a long-term view towards investments.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding Google Cloud, he notes GCP's growth rate was meaningfully higher than Google Cloud's overall, and that it accelerated in 2019 relative to 2018.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai goes over the new YouTube and Google Cloud disclosures. Also notes YouTube Music/Premium have over 20M paid subs, and that YouTube TV has over 2M paid subs.

Eric Jhonsa
Eric Jhonsa

Editor

Sundar Pichai talking.

Eric Jhonsa
Eric Jhonsa

Editor

Google going over its safe-harbor statement.

Eric Jhonsa
Eric Jhonsa

Editor

The call is starting.

Eric Jhonsa
Eric Jhonsa

Editor

The call should be starting any minute (for real this time).

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet's shares are down about 4% heading into the call. As noted before, the stock has had a pretty good run since the Q3 report, so expectations were somewhat high.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet ended 2019 with $119.7B in cash and marketable securities, and just $4.6B in debt.

Eric Jhonsa
Eric Jhonsa

Editor

In addition to the 0% tax rate and slower sales/marketing spending growth, Q4 EPS got a boost from a $488M unrealized gain on equity investments, as well as $402M worth of accounting changes related to equity investments.

Eric Jhonsa
Eric Jhonsa

Editor

Forex remained a headwind, particularly in the EMEA and Other Americas regions. Total revenue rose 17% Y/Y in dollars and 19% in constant currency.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet's Q4 revenue by region:

U.S. +16% to $21.74B
EMEA +15% to $14.1B
Asia-Pac +24% to $7.48B
Other Americas +21% to $2.67B

Eric Jhonsa
Eric Jhonsa

Editor

For comparison, Amazon Web Services is now on a $40B revenue run rate. Though as previously noted, Google Cloud covers not only GCP, but also the sizable G Suite subscription business.


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