Brief:
- Google parent company Alphabet said Q3 2018 revenue grew 21% to $33.7 billion from a year earlier, as the search giant's ad sales rose 20% to $28.95 billion. The results missed the average analyst estimate of $34.04 billion, triggering a sell-off in the stock, according to CNBC.
- Google's traffic acquisition costs (TAC), including payments to phone makers like Apple to be their default search provider, was $6.58 billion or 23% of ad revenues, in line with the previous quarter. Alphabet reported earnings per share of $13.06, beating estimates of $10.42.
- The company's paid search business continues to expand, with the volume of paid clicks on Google properties increasing 62% from a year ago and up 10% from Q2. However, cost-per-click continues to decline, down 28% from a year ago and 7% from the previous quarter.
Insight:
Google's 21% revenue growth marks a slowdown from the 24% gain it saw a year earlier, which may indicate growing competition in the digital ad market with companies like Amazon grabbing more market share. Another indication of some softness is the continuing decline in cost-per-click rates, which means Google is earning less each time someone clicks on a search ad, a downward trend that's being driven by the growth of search on mobile — where prices tend to be less — as well as growing competition as consumers start to use a variety of methods for search, including visual and voice. Researcher eMarketer forecast that Google's share of U.S. digital ad spending will fall to 37% this year from 39% last year, while Amazon's share jumps to more than 4% from 2% last year, per The Wall Street Journal.
Google also is coping with rising costs to bolster traffic to its search engine, especially to Apple that has significant market share in the U.S. While acquisition costs were in line with the prior quarter, they've grown from a year earlier, and the company also spends heavily on hiring staff and developing new technologies like artificial intelligence, voice recognition and cloud computing.
The search giant this month showcased its latest smartphone and also introduced a voice-enabled smart display and its first Chrome tablet to push further into hardware. While Google is steadily gaining market share in the smart speaker space, it's struggled for similar gains in the smartphone category. The company sold about 3.9 million Pixel devices last year, according to an estimate by the International Data Corporation — twice as many as it did in 2016. Still, Google hasn't made a significant dent in the global smartphone market, with Huawei, Samsung, Apple and Xiaomi leading the way in Q2 2018, the IDC estimates.
Google's third quarter also was marred by revelations that it didn't disclose a software bug that divulged the private data of as many as 500,000 users to hundreds of third-party applications. Lawmakers in Washington and Europe are demanding answers from the company about its handling of the possible data breach. Google shut down the consumer functionality of its Google+ social site after the incident.
CEO Sundar Pichai said the search giant has fired 48 employees for sexual harassment in the past two years in response to a bombshell report this week by The New York Times that said the company had protected three senior executives from allegations of sexual misconduct. The company was said to pay Android creator Andy Rubin $90 million in severance after demanding his resignation because of a sexual harassment claim.
Google is in damage-control mode after The Times report. Given the heightened awareness of workplace harassment in the #MeToo era, it remains to be seen how damaging the revelations will be to the company's brand. While it's unlikely that advertisers will boycott Google, the company could seek to shore up its reputation by more public demonstrations of support for women in the workplace.
