California-based Alphabet – of which Google is a part – reported a profit in the first three months of 2019 that sagged under the weight of a hefty antitrust fine by the European Commission (EC).
The tech giant reported revenue of $36.3bn and $9.50 earnings per share in Q1, less than investors had expected after analysts predicted sales of $37.34bn, amounting to $10.58 per share.
Alphabet results, 2019
Investors on Nasdaq reacted predictably, erasing $70bn from the stock market value. The internet giant struggled to explain a shortfall in its latest quarterly revenues, leaving investors frustrated.
The shortfall drove the Alphabet share price down by 8.6% in after-hours trading on 30 April, and on 1 May, premarket trading, the stock was still down 7%, the worst performance in nearly seven years.
Google continues to face pressure around the world from regulators, most notably in Europe
Slower growth was largely caused by a $1.7bn fine from the EC for having placed anticompetitive advertising restrictions on websites using its searches.
Allegations against the firm included the prevention of publishers placing search adverts from competitors on their results pages, forcing them to reserve the most profitable space for Google adverts and a requirement to seek approval before making changes to how rival adverts were displayed. The fine reduced Alphabet net income for Q1 2018 from $9.4bn to $6.6bn this year, and its operating margin from 23% to 18%.
Google is working to satisfy EU regulators who are investigating its hugely popular Android devices following a $5bn fine last year, which is currently being appealed.
While the fines are a financial blow, they also carry an enormous burden of scrutiny for the tech giants amid increasing calls for more stringent regulation, which could damage the long-term profitability of Google.
Decline in sales of online adverts is concerning investors
Roughly 85% of Alphabet revenue comes from the online advertising arm of Google, which sells links, banners and commercials across its own websites and apps and those of partners.
Revenue from Google advertising rose 15% from a year earlier, marking a slowdown compared to year-on-year growth of 24% registered in the first quarter of 2018. The disappointing results are heightened by results issued by the scandal-plagued Facebook, which reported a 26% rise in advertisement sales.
Google is paying more to partners distributing its search engine while charging less for each ad run than rivals are, but this combination has dampened growth.
The search engine is struggling to find the right mix of ad formats to use on mobile devices, voice assistant-enabled home speakers and products sold in emerging markets. Google is also spending heavily to moderate videos on YouTube and to build an enterprise sales team for its cloud business.