Google Advertising Revenue Growth Slows, Triggering Share Slump

Alphabet's Sales came in at $29.5 billion, excluding payments to distribution partners, Alphabet said in a statement on Monday. Wall Street was looking for $30.04 billion, according to the average of analysts’ estimates compiled by Bloomberg.

Revenue from Google advertising rose 15 percent from a year earlier. That was down from 24 percent year-over-year growth in the first quarter of 2018. The disappointing sales were also a stark contrast to scandal-plagued Facebook Inc., which last week reported a 26 percent jump in ad sales.

Google is usually the first place consumers go when searching for new products, letting the internet giant charge premium prices to retailers and other advertisers looking to reach customers online. But people have been increasingly going straight to Amazon.com Inc. to hunt for products and the e-commerce giant has been grabbing a larger share of the digital ad market, chipping away at Google’s lead.

Google Chief Financial Officer Ruth Porat blamed some of the growth decline on currency fluctuations. In an interview with Bloomberg TV, she also shrugged off Amazon’s foray into advertising and said there’s still lots of room for growth for all digital ad companies because so much marketing money is still spent offline.

"Nearly half of ad budgets in the U.S. are still spent offline," Porat said. "Ninety percent of commerce in the U.S. is offline and we are focused on digital playing a big role in that."

The number of clicks on Google ads rose 39 percent in the first quarter. That was the lowest year-over-year growth since 2016. The price, or cost per click, fell 19 percent.

Ad revenue growth was solid on mobile, but barely present on desktop and tablets, according to data gathered by digital marketing agency Merkle. That contributed to the overall slowdown, Merkle’s associate director of research Andy Taylor said.

"It’s unclear how Google might be able to ramp growth back up on these device types," he said. "A lot of the low-hanging fruit has long since been plucked."

At the same time, Google is spending heavily to moderate videos on YouTube and to build an enterprise sales team for its cloud business. The company doesn’t break out YouTube and cloud revenue, but the two are important sources of future growth. Amazon and Microsoft Corp. are well ahead of Google in the cloud market. Google’s other revenue, which includes the cloud business, rose 25 percent to $5.45 billion.

Net income was $6.66 billion, or $9.50 a share, versus $9.4 billion, or $13.33 a share, a year earlier, the Mountain View, California-based company said. The latest results were dented by a $1.7 billion European Commission fine for antitrust violations. Excluding that, profit was $11.90 a share.

Operating margin, a closely watched profit metric, was 23 percent, excluding the antitrust fine. Google capital expenditures dropped sharply in the quarter, in part because of a jump in real-estate spending in the year-earlier period.

Amazon’s digital advertising franchise has grown into the third largest in the U.S., trailing only Google and Facebook, EMarketer estimates. First-quarter sales in Amazon’s “other” segment, which is mostly advertising, increased 34 percent to $2.72 billion, the online retailer said last week.

Alphabet shares hit a record earlier on Monday, and closed at $1,296.20. The stock is up 24 percent this year. In extended trading, the shares fell 6.7 percent.