Alphabet's Q4 Revenue 'Below Expectations'... Mixed Fortunes for Global IT Companies

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Despite strong advertising performance on YouTube, Alphabet, the parent company of Google, reported fourth-quarter results last year that fell short of market expectations. The quality of U.S. tech stocks appears to be divided according to core and new business sectors.

According to CNBC and others on the 3rd (local time), Alphabet announced fourth-quarter revenue of $46.08 billion (approximately 54.86 trillion KRW), below the $46.94 billion forecast by global financial information firm Refinitiv. This is the lowest figure since 2015 on a quarterly basis. Due to the lower-than-expected results, Alphabet's stock price fell more than 5% in after-hours trading.

The Wall Street Journal (WSJ) explained that this was due to disappointing results in the core online advertising business. Bloomberg also analyzed that maintaining growth is becoming difficult as competition in the advertising market intensifies with companies like Amazon.

Google's advertising revenue in the fourth quarter of last year increased by 16.1% compared to the same period the previous year. While Google's advertising revenue exceeded 25% in the second quarter of 2018, it has since declined and maintained the 10% range last year. Although the advertising business itself is steadily expanding, its growth is slowing down.

This is also why Alphabet disclosed YouTube advertising revenue and cloud business revenue for the first time on this day. Sundar Pichai, Alphabet's CEO who took office in December last year, explained in a conference call that the reason for disclosing revenue by business was "to provide greater insight into our business." This is interpreted as emphasizing management transparency and showing growth potential in businesses other than advertising.

The slowdown in online advertising revenue can also be seen in Facebook's results. In Facebook's recently announced fourth-quarter results last year, revenue increased, but advertising performance was weak due to increased costs from security and regulatory tightening.

The performance of global IT companies is mixed in terms of prospects for core and new businesses. Apple, which recorded record-high results last quarter, exceeded expectations due to increased iPhone sales, its core business, and strong sales of wearable devices, while Amazon linked the effect of building a logistics delivery network to strong results. On the other hand, Netflix is evaluated as potentially being hampered by intensified competition in the streaming service market.

However, many evaluations suggest that the growth of global IT companies will continue for the time being. David Kostin, Goldman Sachs' U.S. stock market investment strategist, said in a report on the day, "Unlike the 2000s when the 'dot-com bubble' burst, large IT companies are being appropriately valued and are investing more to maintain growth." He added, "When comparing the top five IT companies in the S&P 500 index?Facebook, Apple, Amazon, Microsoft (MS), Alphabet?with the top companies of the 2000s?Microsoft MS, Cisco, General Electric (GE), Intel, ExxonMobil?the price-to-earnings ratio (PER) based on future earnings is currently lower," and evaluated that "there is room for stock prices to rise further."

However, WSJ also mentioned variables, noting that long-standing factors in the tech sector such as regulatory reviews and changes in user behavior could affect corporate performance.

This content was produced with the assistance of AI translation services.