Parent Alphabet's stock falls after hours as company reports
weak results in core business
By Rob Copeland
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 4, 2020).
Google pulled back the curtain on several of its important
businesses, but not everyone loved what was revealed.
In a surprise move Monday, Google's parent, Alphabet Inc.,
provided financial information on some of its operations, for the
first time disclosing revenue results in areas like YouTube and
cloud computing.
The new data didn't distract from disappointing results in its
core online-advertising operation.
Operating income, a measure of Alphabet's profit from central
bets like search, was $9.3 billion, much lower than the consensus
projection of $9.9 billion. This marks the ninth time in 10
quarters that the company missed on that metric, according to
FactSet.
Revenue of $46.1 billion for the fourth quarter also fell short
of analyst expectations of $46.9 billion.
Alphabet shares dropped 4.7% in after-hours trading. At the
close Monday, the shares were up 11% this year.
The results punctuate 21-year-old Google's stop-and-go efforts
to mature from Silicon Valley adolescence into adulthood. For
years, it managed to cram ever more advertising into its
established search and maps platforms, among others. It is still
doing that, but the company's growth increasingly depends on newer
areas like digital video powerhouse YouTube and bets in less flashy
areas like cloud storage.
The new disclosures, meanwhile, reflect a shift in strategy in
the C-suite.
Analysts and investors have howled for years for more details on
Alphabet's operations, with little success. Chief Financial Officer
Ruth Porat said that the new data were intended "to provide further
insight into our business and the opportunities ahead."
The earnings report was Alphabet's first since Sundar Pichai was
promoted to chief executive in December, succeeding Google
co-founders Sergey Brin and Larry Page. Messrs. Brin and Page are
still on Alphabet's board -- Mr. Page is chairman of the executive
committee -- and hold a supermajority of voting shares, giving them
effective control of decision making at Google that remains
unchanged.
Mr. Pichai was formerly CEO of Google since 2015.
Alphabet said YouTube exceeded $15 billion in annual revenue in
2019. That would be on the lower end of projections for the video
business, which has been the subject of educated guesses for years,
and suggests that YouTube pulls in less than $8 a year from each of
its 2 billion users. On a call with analysts, Mr. Pichai said he
believes there is "significantly more room" to make money off
YouTube's users.
Cloud, on the other hand, is on track for $10 billion in revenue
this year, Alphabet said, representing better-than-expected figures
for a business that operates in the long shadow of competitors
Amazon.com Inc. and Microsoft Corp. By comparison, Google's search
unit pulled in $27.2 billion in the last quarter alone.
The company didn't disclose profits or losses for either of
those businesses, but some analysts were jubilant at any new data.
Heather Bellini of Goldman Sachs said "thank you" four times during
the question-and-answer session of the company's earnings call. "I
think this is the best Alphabet call I've been on," she said.
Alphabet's move toward greater transparency is notable in part
because analysts and investors are watching closely to see whether
Mr. Pichai will make meaningful changes at the company. Mr. Pichai
hinted Monday that he expected some of what Alphabet calls its
"other bets," which include its self-driving car division, to take
on outside investors soon.
Despite any slowdown in overall growth, the conglomerate holds
an enviable competitive position. In a sign of its heft, Alphabet
last month became only the third U.S. company to close above $1
trillion in market value.
Alphabet's results were an outlier in Silicon Valley, where
fourth-quarter earnings have been strong from fellow tech giants
including Facebook Inc., Apple Inc. and Amazon.
Google faces a fierce array of threats this year. Competitors
including Amazon are chipping away at its online-advertising
business, while state and federal regulators are beginning broad
investigations of purported anticompetitive behavior. Google has
said it would cooperate with the inquiries.
In November, federal health regulators opened an inquiry into
Google's access to personal patient data from the giant health
system Ascension, after The Wall Street Journal reported on a
partnership dubbed "Project Nightingale."
Mr. Pichai, who has seldom discussed Google Health publicly,
defended such arrangements near the start of his prepared remarks
on Monday. He said patient data are "much more secure" with Google
"than in paper records or on premises."
Write to Rob Copeland at rob.copeland@wsj.com
Corrections & Amplifications Larry Page is chairman of
Alphabet's executive committee. An earlier version of this article
incorrectly stated he was chairman of the board. The first name of
Sergey Brin was incorrectly given as Sergei in an earlier version
of this article. (Feb. 3, 2020)
(END) Dow Jones Newswires
February 04, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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