Google's Earnings Call Reveals Slowing Ad Revenue Growth
Over the past few weeks, several of the biggest technology companies have held their quarterly earnings calls for the first quarter of 2019. Alphabet, the parent company of Google, announced its quarterly earnings on Monday, April 29, which was the tipping point on investor’s negative sentiment for the company that has been building over the course of the past year. The stock (GOOG) responded to the lacklustre earnings report by dropping about eight percent in value to $1,189.51 by the time the market opened the next day.
Alphabet revealed some important indicators about its overall revenue growth, as well as its advertising revenue growth that comprises a large portion of its revenue. Google’s overall revenue growth this quarter was 17 percent, a significant decrease from 28 percent — the corresponding revenue increase during the first quarter of 2018. This decrease is driven by Google’s primary revenue stream: advertising. Advertising revenue growth is down by nine percent from 24 percent in the first quarter of 2018 to 15 percent growth in the first quarter of 2019. As Google faces antitrust issues with the European Union over exclusionary acts from its service, Adsense, this hit to growth is creating pessimism over the company’s long-term success.
During the earnings call, Google attributed its drop in advertising revenue to increasing currency fluctuations and various product changes that lost the company money in the short term. But investors hoped to see more details about the drop in growth and further measures that the company would take in future quarters to everse the year-long trend of shrinking growth.
Coupled with its drop in revenue growth, Google revealed that its total revenue in the first quarter of this year stood at $6.6 billion after it paid $1.7 billion in E.U. fines. The fine was levied after E.U. regulators found that Google has relied on anti-competitive restrictions on competitors’ products to maintain its dominance in online advertising. The regulators asserted that anti-competitive restrictions have been denying other companies the opportunity to innovate and is allowing Google to maintain its monopoly in the space. The antitrust fine comes after last year’s antitrust fine of $5 billion that Google paid for strengthening the dominance of its own search engine.
While these blows to Google’s first-quarter revenue are a startling short-term indicator for Google’s performance, they could have much more significant consequences for the company’s success in the long run.