Investors don’t care about big fines, as long as companies still make a ton of money — but all bets are off if revenue growth doesn’t live up expectations. That’s one of the take-aways from the market’s response to Alphabet’s Q1 2019 earnings report Monday afternoon.
Google’s corporate mothership generated revenue of $36.4 billion during the first quarter, compared to $31.1 billion during the same quarter a year ago. Accounting for traffic acquisition costs, Alphabet generated revenue of $29.5 billion. The company’s net earnings for the quarter were $6.7 billion, compared to $9.4 billion a year ago. This translates to earnings per share of $9.50.
Analysts had expected adjusted revenue of $30 billion, and earnings of $10.53 per share. Investors responded to the revenue miss by sending Alphabet’s stock down 6.6% in after-hours trading.
Alphabet’s net earnings included a one-time $1.7 billion fine issued by the European Union for anti-competitive advertising practices. It’s the third such fine the company has to pay to European regulators.
However, in past quarters, investors more or less shrugged off billions of dollars in fines because of the company’s ability to surpass analyst forecasts. Something similar happened to Facebook, which saw its stock go up by 4% on its Q1 earnings report despite a warning that it may have to pay as much as $5 billion to settle an ongoing FTC investigation.
Google once again grew its non-advertising revenue, to the tune of $5.5 billion for the quarter, but the company apparently took a hit in hardware sales. Alphabet and Google chief financial officer Ruth Porat attributed this to industry-wide promotional activities in response to pressure on high-end phone sales.
Google CEO Sundar Pichai reiterated those remarks, saying that the entire industry was facing “year-on-year headwinds.” However, he also said that Google wasn’t looking to call it quits. We are still in early days, but our commitment is very strong,” Pichai said. “We view this as a hugely important opportunity.”
Porat did call out Home hardware as a segment that has been performing better, and said that the company would have hardware announcements at its Google I/O developer conference next week. The company is expected to announce a more affordable version of its Pixel phones and possibly a second smart display device soon.