Alphabet financial report from Q3 2019 – 20% revenue growth
Sundar Pichai, CEO
As always, most of Alphabet’s revenue comes from Google ads. According to a recent report, Google ads generated about $33.92 billion in revenue for Alphabet, which is a significant increase compared to the revenue of this segment in the same period last year ($28.95 billion). Google’s other revenues, which are derived from its cloud business, hardware products (such as Pixel phones and Nest and Home devices) and the Play Store service, are included in the company’s financial report under the title of Google other revenues. According to a recent report, Google’s revenue in this sector increased by 39% compared to the third quarter of 2018, reaching $6.42 billion and accounting for 16% of the company’s total revenue.
Financial results of other Alphabet businesses – which include companies such as Waymo, Wing, Verily, Fiber, etc. – are recorded in the company’s financial report under the title Other Bets (other risks). This sector, like the previous seasons, is still loss-making, but apparently its revenue generation is increasing at a small speed. Alphabet’s last quarter’s revenue in this segment – mainly from Verily and Fiber – was $155 million. As mentioned, this revenue did not include any profit and imposed a loss of $941 million on Alphabet. For comparison, the segment posted revenue of $146 million and an operating loss of $727 million at the same time last year.
But the decline in the value of Alphabet’s investments affected the net income (or bottom-line) of this American company. A hefty $1.5 billion drop in the value of equity investments has largely overshadowed Alphabet’s revenue growth in its mobile search, YouTube advertising and cloud businesses. Of course, Alphabet did not explicitly mention which of its investments faced a decline in value in the recent quarter, but we know that before the public offering of shares of Uber and Slack, Alphabet had invested in both of these companies. The share value of both companies has been reduced since they entered the stock exchange at the beginning of this year.
Of course, Alphabet’s investments weren’t the only factor that affected the company’s net income, as the increase in expenses was not without its impact. Alphabet’s operating costs in the last quarter were estimated at 31.3 billion dollars, which compared to the costs of the same period last year (25.1 billion dollars) increased by about 25%. In the meantime, Alphabet’s general and administrative expenses have increased sharply and reached 2.6 billion dollars with a 48% growth compared to the same period last year.
According to Ruth Porat, the increase in executive administrative costs is more than anything related to the agreement that Google signed last month to resolve tax disputes with France. According to the agreement, Google agreed to pay $554 million in fines to the French government. If we do not consider this penalty, the growth of Alphabet’s general and administrative expenses will be 16%.
It is interesting to know that the growth rate of Alphabet’s other expenses has been higher than the growth rate of this company’s sales. Cost of revenue (that is, the cost directly related to the company’s products and services) as well as Alphabet’s research and development costs have increased at a faster rate than the company’s revenues. According to Porat, the majority of Alphabet’s revenue has been spent on data centers and depreciation. But on the other hand, the research and development costs of the company have increased due to the hiring of new engineers. It should be noted that at the end of September 2019, the number of Alphabet employees reached 114,096 people with an increase of 18-21% compared to the third quarter of 2018.
In contrast to revenue growth – which was in line with experts’ forecasts – Alphabet’s earnings per share failed to meet expectations. The profit per share or EPS in the last quarter was announced at $10.12, which was a noticeable drop compared to the profit per share in the last quarter of 2018 (i.e. $13.06). Analysts polled by Bloomberg had expected EPS to decline year-over-year, but not by this much. Analysts had estimated Alphabet’s earnings per share at around $12.35. Following the release of Alphabet’s financial report, Alphabet shares fell 2% to $1,266.75 in after-hours trading.