While the company’s earnings per share of $15.35 topped expectations of $12.53 and its customer acquisition costs nailed the $8.50 billion estimates, its revenue couldn’t quite cross the finish line. Alphabet reported $46.08 billion in revenues, instead of the $46.94 billion analysts anticipated.
The results were mixed, but investor reactions weren’t: Wall Street sent shares down 4 percent in after-hours trading.
But in a notable first, Alphabet broke out figures from YouTube and its cloud business. The top-line takeaway from these units: YouTube has become a $15 billion business, and Google Cloud is growing like gangbusters.
The video platform’s $4.72 billion ad revenue during the quarter capped off a $15.15 billion year — a gain over the previous year’s $11.16 billion — while Google Cloud reported $2.61 billion for the fourth quarter and $8.92 billion for 2019. In 2018, the business unit brought in just $5.84 billion.
Of course, the major driver for Google across various platforms is advertising, and overall ad revenue did rise. Ad revenue came in at $37.93 billion, for a gain of more than $4 billion over the previous quarter’s $33.91 billion and more than $5 billion over the year-ago quarter’s $32.63 billion. But it wasn’t as much growth as investors wanted to see and, in fact, underscored slowing growth in the company’s core ad business.
Meanwhile, the Android-maker’s “other bets” revenue of $5.26 billion — which covers smartphones, YouTube TV and other online services — dropped compared to the third quarter’s $6.43 billion and the fourth quarter of 2018, which drew in $6.48 billion.
The results cap off a tumultuous year for Alphabet and Google, in which slowing ad growth and missed estimates shook investor confidence. Meanwhile, the company faces a battle on another front, namely Washington, D.C.
Federal probes into privacy and antitrust have been dogging companies like Facebook and Google, the latter of which is under investigation by the Justice Department and attorneys general across the U.S. YouTube’s $170 million settlement over alleged child privacy violations raised by the Federal Trade Commission didn’t help matters.
Analysts seemed to perk up at Google chief executive officer Sundar Pichai’s ascension to Alphabet ceo last year and Google’s entry into the trillion-dollar valuation club. But the news couldn’t overcome the latest revenues miss.
At this point, to right the ship, Alphabet appears to be betting the future on what it sees as its cash cows: YouTube and Google Cloud.
“YouTube reached $15 billion in ad revenues in 2019 growing at 36 percent compared with 2018, and it now has over 20 million Music and premium paid subscribers and over 2 billion YouTube TV paid subscribers, ending 2019 at a $3 billion annual run rate in YouTube subscriptions and other non-advertising revenues,” Pichai said on the call.
He also called Google Cloud’s revenue growth rate “significant,” pointing out its 53 percent year-over-year boost. The business unit has been expanding, investing billions of dollars into numerous cloud acquisitions.
The company committed to continue pushing efforts into deep computer science, artificial intelligence and new areas, like health care, among others. Google’s fingers reach into a broad array of areas, from cars to voice assistants to shopping and more.
“Shopping and commerce is another exciting area,” Pichai said. “We’re making strong leadership hires in this area to help build a thriving business for partners of all sizes. Over the Black Friday and Cyber Monday holiday weekend, we had the largest number of daily shoppers on Google.com ever in our history.” He called attention to shoppable products in YouTube’s home feed and search results as opportunities to drive ad sales. “With all the related content on YouTube, like unboxing and beauty videos, this is a format people love, and it delivers a simple, in-video buying experience.”
Ultimately, it’s a matter of laying groundwork for sustained growth through the short and long term.
“The Alphabet structure allows us to have a portfolio of different businesses with different time horizons without trying to stretch a single management team across different areas,” Pichai added. “We’ll continue to take a long-term view, managing the portfolio with the discipline and rigor needed to deliver long-term returns.”