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Google older Alphabet earnings miss estimates, rising at the slowest pace in three years

(Reuters) – Alphabet Inc Google failed to take advantage of the benefits of a strong economy that strengthens rivals in the first quarter, allowing the search giant’s revenue below Wall Street targets on Monday.

FILE PHOTO: The Google logo is pictured at the entrance of the Google offices in London, Britain, 18 January 2019. REUTERS/Hannah McKay

Shares of the Alphabet has dropped from more than 5 percent after hours after closing 1.5 percent to a record high of $1,296.20.

The main competitors for the ad-expenditure such as Facebook Inc., Snap Inc, Amazon.com Inc and Twitter Inc all reported last week, at a quarterly revenue above or in line with the expectations of analysts.

Alphabet said the quarterly revenue increased 17 percent compared to a year ago to $36.3 billion, compared with Wall Street’s average estimate of $ 37.3 billion, according to the IBES data of Refinitiv. Accounting for currency fluctuations, sales increased by 19 percent.

The 17 percent increase was the slowest in three years, compared with 26 percent for the same quarter a year earlier.

The company said paid clicks on its properties declined by 9 percent compared to the previous quarter.

Quarterly expenses increased approximately the same as that of the revenue, up 16.5 percent over last year to $29.7 billion.

Expenditure rose faster than revenue for a large part of the past two years, for some investors amid increasing scrutiny on the company’s privacy policy and the efforts to restrict advertising to potentially offensive content.

But positive macro-economic signals have given reason to believe that the company’s ad business is healthy. Shares have risen by 11.9 percent between the last earnings announcement and Monday.

About 84.5 percent of revenue, compared with 85.5 percent a year ago, came from Google’s ad business, which sell links, banners and commercials about its own websites and apps, and partners.

Google’s 3 billion users, to help create the world’s largest seller of internet advertising, capturing nearly a third of all income, according to research firm EMarketer. Facebook is about 20 percent.

Alphabet of the investment has decreased from 36 percent in comparison with last year to $4.6 billion. The growth moderated from the previous quarter as Alphabet had warned in February.

Alphabet has said the spending increases are justified, with enormous expenditure going to offices, data centers, and artificial intelligence capabilities in line with the expected demand for its services.

Still, the company has yet to tout significant revenue from its expenses to businesses like self-driving cars and the AI helper Google Assistant.

Newer units that produce noticeable turnover remained behind in market share, including Google ‘ s consolidated hardware unit and Google Cloud, which sells computing and data storage services to businesses.

And Google’s cost would be able to jump further as governments around the world to follow through on the growing threats to rein in the ability of apps to track users for advertising purposes. Other supervisors have discussed is forcing companies to step up monitoring of the user content.

Shares of the Alphabet have gained 23 percent this year, the least growth among the so-called FAANG group, with Facebook, 48 percent, Netflix is 39 percent, Apple’s 30 percent and Amazon at 29 percent.

FINE ACCOUNTING

Alphabet’s expenses included a $1.7 billion fine from the European Commission for the placing of anti-competitive advertising restrictions on sites with the help of the search queries.

Income was also enhanced by a change in the valuation of the Alphabet of the stakes in the ride-sharing app Lyft Inc., which is an initial public offering a month ago. Alphabet could see similar gains later this year as other highly-valued startups in the property, including transport app Uber Technologies Inc and workplace software company, Slack Technologies Inc., to make their public debut.

Including the European fine, net income was $6.7 billion, or $9.50 per share, compared with analysts average estimate of $7.3 billion, or $10.48 per share. Profit, excluding the fine amounted to $8.3 billion, or $11.90 per share, beating analysts estimates of $10.61 per share for the ordinary result.

Operating margin excluding the penalty was 23 percent, an increase of 22 percent in the year-ago period.

Reporting by Arjuna Panchadar in Bengaluru and Paresh Dave in San Francisco; Editing by Sriraj Kalluvila and Lisa Shumaker

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