How fines and ‘Other Bets’ are dampening Alphabet’s ardour

30 Apr 2019132 Views

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Bicycles outside Google campus. Image: © akoppo1/Stock.adobe.com

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Now a mature business, Google parent Alphabet is wading through some pretty thick soup.

On the face of it, Alphabet looks to be in rude health with revenues of $36.3bn, up 17pc year on year, and boasting major growth surges in mobile, YouTube and cloud.

But, beneath the surface, the company is staring at some pretty stark realities in the form of a number of competition and privacy fines, and the reality that some of its moonshot bets on the future are taking longer to pay off.

Crucially, Alphabet told investors that it has had to absorb the €1.5bn European Commission antitrust fine related to allegations that Google with AdSense for Search partners infringed European competition law.

Shares slumped 7pc in after-hours trading after the company failed to beat analyst predictions and reported lower profits (net income) of almost $6.7bn compared with $9.4bn last year.

Earnings per share were down to $9.50 compared with $13.33 a year ago.

Winning from Other Bets?

The company is also struggling to match the serious growth rates of rivals from Amazon to Facebook and even Microsoft, which many had previously written off but has now achieved a valuation of $1trn.

“We delivered robust growth led by mobile search, YouTube and Cloud, with Alphabet revenues of $36.3bn, up 17pc versus last year, or 19pc on a constant currency basis,” said Ruth Porat, chief financial officer of Alphabet and Google. “We remain focused on, and excited by, the significant growth opportunities across our businesses.”

Alphabet’s headcount is also up significantly to 103,459, from 85,050 a year ago.

Google advertising revenues were up at $30.7bn from $26.6bn a year ago.

The company clearly needs some new wins, but it is doubtful these victories will come from its Other Bets group – which includes Waymo, Verily, Fiber, Wing and Loon – any time soon. These are ventures that span everything from self-driving cars to internet-emitting balloons, and the group had a Q1 operating loss of $868m on revenues of $170m, which were up from $150m a year ago.

Not only that but, as a 21-year-old company, Alphabet/Google is no longer a start-up but a grown-up tech business with real responsibilities and workers with genuine feelings about things that matter. Employees staged a walkout in November last year over how the company dealt with sexual misconduct allegations, and in recent weeks hundreds of employees signed a petition regarding the company’s treatment of temporary contractors.

It is tough at the top as Alphabet is wrestling with as many problems as it has opportunities.

Updated, 10.39am, 30 April 2019: This article was amended to clarify that Alphabet reported a net income of almost $6.7bn, not $6.5bn, and to confirm that Microsoft has already reached a valuation of $1trn.

John Kennedy is an award-winning technology journalist who served as editor of Siliconrepublic.com for 17 years.

editorial@siliconrepublic.com