Mountain view High spending on search engine traffic, cloud computing and higher staffing costs in the past third quarter of 2019 reduced gross margins at Google's parent company, Alphabet.
Adjusted earnings fell to $ 10.12 per share from $ 13.06 the previous year. Even if one excludes a positive tax effect of the previous year, the previous year's profit of $ 11.86 is even higher. Net income was $ 7.06 billion, well below $ 9.19 billion a year ago. These are numbers that are not used to Alphabet investors.
The holding company's revenue rose 20 percent quarter-on-quarter, up slightly from analysts to $ 40.49 billion. Wall Street reacted unsettled, Alphabet shares were in normal trading at plus two percent rose sharply, were lost in the after-hours virtually all profits again.
The operating margin fell according to alphabet to 23 percent after 26 percent in the previous year. Increased investments in Cloud Computing Centers and services such as Artificial Intelligence are noticeable, as well as a year-on-year increase in employee numbers of around 20,000. In the September quarter alone, there were 6450 new hires.
“We continue to invest with a sense of proportion in the expansion of our growth fields and in new employees,” said Alphabet CFO Ruth Porat. A major, negative role was played by an agreement with France in the tax dispute, which cost a billion dollars.
The strongest sales growth, with 19 percent to $ 28.65 billion, was again made on Google's own websites and services, including offers like Youtube or the Google Play app store. The latter are not shown in detail. The entire Google network spent $ 33.9 billion on advertising, up 17 percent.
Other websites or apps are paid so-called “Traffic Acquisition Costs” (TAC), which means that users redirect to offers like Google Maps or the search engine. Google can then place paid advertising for these users. In the quarter, payments totaled $ 7.49 billion, an increase of 14 percent, or 22 percent of total ad revenue, and one percentage point less than last year.
A disappointment was the “paid clicks” on advertising. On Google's own offerings, they rose to the previous year by only one percent, a year ago it was still plus 18 percent. Google's “other revenues” include the cloud business and hardware, such as smartphones. $ 6.4 billion in revenue is reported here, down from $ 4.6 billion a year earlier.
The cloud is considered to be the most important growth area in the Group and has to be under the new boss Thomas Kurian Amazon and Microsoft catch up. This is a difficult undertaking, above all because Microsoft has just received a $ 10 billion contract from the Pentagon, spread over ten years, and has again increased the gap to Google in third place. Google CEO Sundar Pichai called in the analyst meeting as a growth driver specifically search on mobile devices, YouTube and cloud computing.
There's little enlightening to Alphabet's risky and expensive bets on the future like Waymo, who works on self-driving cars. Other Bets, the other segment, generated $ 155 million in revenue, but also incurred an operating loss of $ 941 million.
Rumors, Alphabet have submitted an offer for the ailing fitness tracker and smartwatch provider Fitbit, were not commented on Monday on inquiries. A purchase of Fitbit would only officially confirm what secretly everyone already knows. Google's appearance in smartwatches with its own operating system Android Wear or WearOS has crashed crashing. The market is now owned Apple, Samsung has long used its own operating system for its smartwatches, Google Partner Fossil comes only on single digit market share.
With Fitbit, Google could leave behind its Android operating system for watches and venture a new entry into the field of fitness and health care. This area also threatens to become increasingly monopolized by Apple. That's why Fitbit is under high pressure. The price reduction of the Apple Watch of the third generation to $ 199 now attacks Fitbit's top product directly, which is now priced just the same.
A fresh start at Wearables is urgently needed. If the Apple Watch continues to emancipate itself from the iPhone, so it becomes independent, it is also interesting for owners of Android smartphones as an alternative. Then the market would be lost for Sundar Pichai.
More: Cloud services are predominantly in the hands of foreign companies. Read here how the economics minister tries to break the dominance now with a European cloud.
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