Alphabet third-quarter profit misses estimates

By Paresh Dave

(Reuters) – Google parent Alphabet Inc (O:) missed analysts’ estimates for quarterly profit on Monday as it reported its highest-ever quarterly expenses, sending shares down about 1.7% even though revenue growth topped expectations.

Google provides limited product-level financial disclosures, leaving investors increasingly uncertain about how pressures including regulatory scrutiny, advertiser boycotts and global trade tensions are affecting operations.

Alphabet shares have underperformed relative to some peers, rising 17% in the last 12 months entering Monday, compared with a 33% gain for Microsoft (O:) and 29% for Facebook (O:).

Alphabet shares fell 1.7% in after-hours trade to $1,267.60.

Google has tried to demonstrate that its cloud-computing business is roaring, disclosing last quarter about $2 billion in revenue and saying that plans continued to hire thousands for that unit to stoke growth. It also has tried to reassure investors that there is no weakness in its YouTube video unit, while expressing confidence in its business overall through share buybacks.

But cash continues to be spent on other businesses such as hardware and dealing with the clashes with regulators. Total expenses were $31.3 billion, about 25% higher than a year ago and topping the previous high of $31.1 billion in the 2018 fourth quarter.

Google in the third quarter acknowledged investigations by the U.S. Congress, Department of Justice and 48 states into the company’s competitive practices. It settled a privacy investigation by the Federal Trade Commission. It also got an additional 90-day reprieve from an export ban that would restrict its relationship with Chinese smartphone maker Huawei, one of its top partners in distributing mobile apps.

Google has said it is cooperating with the increased scrutiny, while saying that it has survived calls for increased regulation many times.

Alphabet, which generates about 85 percent of its revenue from sales of ad space and ad technology, reported total third-quarter revenue of $40.5 billion. That was up 20% over last year and compared with 19% growth in the second quarter. Analysts on average estimated 19.52% growth and $40.325 billion in revenue, according to IBES data from Refinitiv.

Net income for the third quarter rose to $7.1 billion, or $10.12 per share, compared with analysts’ estimates of $8.811 billion, or $12.44 per share.

The operating margin was 23%, down from 24% in the second quarter.

Shares of Google closed 1.95% higher in regular trade on Monday. The shares earlier had risen about 2% after Reuters, citing sources, reported Google had made an offer to acquire U.S. wearable device maker Fitbit Inc (N:).

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