Although it has a few soft spots, Alphabets (GOOGL) Q3 report is not something for investors to panic about –…
Although it has a few soft spots, Alphabets (GOOGL) Q3 report is not something for investors to panic about – especially considering where the stock market is trading in profit.
After the clock on Thursday Google Parent Company, Q3 reported GAAP revenue of $ 33.74 billion (an increase of 21% per annum) and EPS at $ 13.06. Excluding an increase of $ 1.20 from bookkeeping changes related to equity investments, EPS was $ 11.86, which was well above a 10.10 euro consensus. However, revenues did not decrease with a consensus of $ 34.1 billion.
Excluding traffic purchasing costs (TAC – advertising revenue for sharing payments to partners), revenues were $ 27.1
6 billion, slightly below a consensus of $ 27.32 billion.
The class A and C shares of the alphabet are down 3% among a 2% decrease for Nasdaq. The fact that – unlike Amazon.com (AMZN), which entered its third quarterly report by 53% a year – Alphabet was only about 5% in 2018 from Thursday’s closing seems to be limiting the damage.
It’s also no wonder that after weighing all the positive and negative effects, Google’s top line is not so bad.
As CFO Ruth Porat noted earnings, currency fluctuations (ie, a stronger dollar) were an important headquarter in Q3. After increasing sales by 26% in dollars and 23% in real currency (CC) in the second quarter, alphabet revenue increased by 21% and USD and 22% in CC during the third quarter. While analysts are well aware of the dollar’s latest boost, some may have underestimated the size of its impact on Q3 sales.
In addition, due to strong mobile search and YouTube ad growth, Google reported the paid ad clicks on its own websites and apps that account for the lion’s share of advertising revenues increased 62 percent annually. It is true from the second quarter 58% and Q1’s 59%.
This growth is partially compensated by a 28% decrease in average ad price or CPC – a decline worse than the second quarter 22% and Q1s 19%. The CPC drop has a lot to do with the fact that mobile search and YouTube ads on average have lower prices than PC search ads.
But in a long-term perspective, I think it’s much better for Google to see strong paid click growth, which is partially offset by high price drops, but the opposite. As the company continues to be better for making mobile search and YouTube ads more efficient – regardless of targeting the right user, measuring the impact of ads or converting ad clicks to activities like purchase, email registration, and app downloads. – The ad prices for both platforms are likely to improve.
Meanwhile, TAC pressure, which has been a major headwind in recent quarters, declined slightly in the third quarter. Unlike the last quarter, TAC was flat as a percentage of Google’s advertising revenue (23%). The fact that Google appears to have been one year anniversary of the start of a revised deal with Apple (AAPL) – it makes Google the default search engine for both the Safari browser and the iOS search feature, with Apple apparently getting a
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Going forward, the EU’s latest Android decisive – currently being appealed by Google but going to be in effect – could lead to higher TAC costs in the EMEA region, accounting for 32% of Google Q3 revenue. By allowing smartphone OEM users not to pre-install Google Chrome and search their Android devices if they wish, the domains could give OEM users the leverage effect of requiring large ads for search ads in exchange for installing the applications.
As said CEO Sundar Pichai shortened Google’s decision on the call and noted that some changed business conditions would affect only forward-looking phones suggesting that the popularity of Google’s services (European search is close to 90%) gives a little leverage. “[Changes are] will take some time to reach users,” he said. “And it’s hard to predict how the licensing model will be assumed.”
At this time, Google responds to the ruling by charging Android OEMs $ 10 to $ 40 per device in the EU to install Play Store and apps other than Chrome and Search, and then offer to cover some or all of these costs for an OEM Also preinstalls Chrome and Search. Time will tell you what the final business conditions look like.
There are some other potential headwinds for Google investors to keep an eye on. Macro printing – exacerbated by trade tensions – may affect sales in certain markets. Aggressive spending may also weigh in: Google’s operating expenses increased 26% year-on-year in the third quarter and its capital expenditures increased to $ 5.3 billion from a year ago of $ 3.5 billion. And while it’s worth remembering that e-commerce is just one of many ad verticals that Google relies on, and one where the company has performed quite well, it sees the rapid growth of Amazon’s e-commerce advertising business.  Nevertheless, Search and YouTos are both still well positioned to deliver good growth in the next few years, as advertisers continue to switch to online channels. And between Google Maps, Waymo, Play Store, Hardware Sales, G Suite, and Google Cloud Platform (GCP), the company also has several other companies that are likely to have a high revenue growth over them, and which can be collectively
In this context, Google’s future margins – shares trade for about 23 times its 2019 GAAP EPS consensus – still quite reasonable, although Q3 earnings fell slightly after expectations.