Alphabet Posts Mixed Q4 Results as YouTube Disappoints

Alphabet Posts Mixed Q4 Results as YouTube Disappoints
February 5, 2020

 

Google’s parent company, Alphabet Class A (GOOGL: NASDAQ) shares declined 1,447.07 $38.87 or 2.62% to close at $1,447.07 after the company reported fiscal 2019 fourth-quarter revenues below estimates. The company’s market cap recently surpassed $1 trillion in market capitalization. However, the search engine giant’s Q4 earnings comfortably beat analysts’ estimates. For the first time, the company disclosed YouTube and cloud revenues. Notably, investors were also not impressed with hardware sales and YouTube revenues.

Mountain View, California-based company, reported fourth-quarter 2019 revenues of $46.075 billion, an increase of 19% from $39.276 billion in the corresponding quarter last year. The Street analysts had anticipated revenues of $46.94 billion for the quarter.

During the quarter, Alphabet’s total expenditures increased by 18.5% y-o-y to $36.809 billion.

For the fourth quarter ended December 31st, 2019, Alphabet posted net income of $10.671 billion, or $15.35 a share, compared with a net income of $8.948 billion, or $12.77 per share in the year-ago period. Analysts polled by Thomson Reuters anticipated the company to post earnings of $12.59 per share for the quarter.

The company’s traffic acquisition costs were $8.50 billion, in line with analysts’ estimates.

Sundar Pichai, CEO of Alphabet and Google, highlighted the company’s high-tech investments as a major reason for the revenue and earnings growth. Pichai said: “Our investments in deep computer science, including artificial intelligence, ambient computing and cloud computing, provide a strong base for continued growth and new opportunities across Alphabet. I’m really pleased with our continued progress in Search and in building two of our newer growth areas — YouTube, already at $15 billion in annual ad revenue, and Cloud, which is now on a $10 billion revenue run rate.”  

The company generated $15.15 billion from YouTube advertisements in fiscal 2019. In the recent quarter, the company posted a YouTube advertisement revenue of $4.72 billion.  In the previous fiscal year, YouTube advertisements generated revenue of $11.16 billion, which includes $3.61 billion in 4Q 2018.

Revenue from YouTube advertisements division does not account for non-advertising revenue, such as YouTube TV subscriptions, which was included in Google’s other revenue division.

The CEO further revealed that Google has 2 million paid subscribers for its YouTube TV at the end of last year, implying an annual run rate of $3 billion in YouTube Subscriptions and other non-advertisement revenue in 4Q 2019.

Segment-wise,

  • Cloud division posted revenue of $8.92 billion in fiscal 2019, including $2.61 billion amassed in the final quarter. In fiscal 2018, Cloud division generated revenues of $5.84 billion, including $1.71 billion in Q4 2019. More importantly, cloud business finished 2019 with a $10 billion annual run rate, up 53% from the previous year.
  • Advertising revenue was $37.93 billion in the fourth quarter, an increase from $32.63 billion in the year-ago period. The CEO revealed that 50% of advertisers carry out their Search spend through an automated bidding process.
  • Other revenue, which includes gadgets such as Pixel phones and other cloud products, was $5.26 billion in Q4 2019, compared with $6.48 billion in Q4 2018.

CFO Ruth Porat clarified that Alphabet is in “the early stages” of its “be-everywhere” hardware plan referred to as “ambient computing.” The company trusts that the takeover of Fitbit will support in achieving its objectives soon. Ms. Porat stated that Nest Mini, Nest Hub Max, and Pixel 3A received a good response from the market last year.

The company’s employee count, the biggest driver of R&D costs, increased by 4,903 in 4Q 2019, representing an increase of 20% from the prior-year period.

Pichai, who took over the reins from the company’s founders Larry Page and Sergey Brin in this quarter, has a tremendous job to accomplish. The company faces antitrust scrutiny from the Justice Department and an alliance of 50 attorneys general throughout the US. Last year, the company’s YouTube division paid $170 million as a settlement to the Federal Trade Commission for violation of child privacy rules.

To strengthen Google Cloud business, Google has taken over five enterprises, including Elastifile (June), CloudSimple (November), and Appsheet (January 2020).  The largest acquisition was data analytics firm Looker, which was bought for $2.6 billion last year.

The quarterly revenue miss is expected to keep the stock in a downtrend in the near-term. However, traders need to be extremely cautious as the company has posted impressive revenue and earnings growth. Once the market takes notice, the stock will rebound sharply.

The historical price chart indicates that the stock is facing resistance at 1480. Furthermore, the RSI indicator is declining from the overbought region. Therefore, we can anticipate the stock to remain bearish in the short-term.

GOO - technical analysis - 5th Feb 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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