On Monday, Alphabet Inc’s Google saw its slowest revenue growth in three years from increased competition in advertising, stumbles in its smartphone business and disruptive changes at YouTube that left the leading internet ad company lagging rivals.
Shares of Alphabet dropped 7.5 % after hours, setting them up for the biggest one-day drop since falling 8 % in October 2012. They had closed Monday at a record high of $1,296.20.
Alphabet Chief Financial Officer Ruth Porat attributed slower revenue growth to currency fluctuations, competition, and unspecified product changes. The company is facing continued pressure from advertisers to tighten controls on its fast-growing YouTube video service so that they do not appear to be sponsoring adult or offensive content.
Also, Google is struggling to find the right mix of ad formats to use on mobile devices, voice assistant-enabled home speakers and in emerging markets.
Eight of the 11 analysts who questioned executives on a call on Monday asked about the revenue issues, an unusual level of shared interest. But the executives offered limited new details, prompting Barclays’ analyst Ross Sandler near the end to preface a question by saying he was just beating a dead horse.
Reflecting on the sales growth slowdown, Porat said unspecified changes at YouTube had boosted first-quarter revenue a year ago, with nothing delivering a comparable bump this year.
About 85 % of the Alphabet’s revenue comes from Google’s ad business, which sells links, banners, and commercials across its own websites and apps and those of partners.
Chief Executive Sundar Pichai said revenue slowdowns should be expected as the company focuses on the long term. “You are going to have quarter-to-quarter variations once in a while, but we remain confident about the opportunities we see,” he said on a conference call.
Major competitors for ad spending such as Facebook Inc, Snap Inc, Amazon.com Inc, and Twitter Inc all reported last week quarterly revenue above or in line with analysts’ expectations.
Alphabet said its quarterly revenue rose 17 % from a year ago to $36.3 billion, about $1 billion short of Wall Street’s average estimate, according to IBES data from Refinitiv.
“Google ad revenue growth has been slowing amid downward pressure on ad prices, especially for revenues coming from international markets,” Monica Peart, senior forecasting director for ad research firm eMarketer said in a statement.
