Google gives reminder rapid growth isn’t guaranteed

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Published: May 1, 2019 2:42:54 AM

Excluding the impact of Alphabet’s latest fine from European regulators, Alphabet’s operating profit was better than expected, and its spending slowed on big capital projects such as computer data centres.

Back then, Google’s growth looked as if it hit a wall, and investors didn’t trust the company to spend its money wisely.

Google investors may have had a flashback Monday to the company’s bad old days of 2015. That year may feel like a distant memory. That was before news cycles were measured in seconds. It was before people were talking in earnest about FAANG stocks and before Mark Zuckerberg had sat through multiple rounds of congressional hearings. Back then, Google’s growth looked as if it hit a wall, and investors didn’t trust the company to spend its money wisely.

On Monday, then, it was a surprise to people with memories longer than milliseconds when Google parent company Alphabet turned in relatively meek revenue growth for the first quarter, although with restrained spending by Google standards.

The company said that its Google segment advertising revenue rose about 15% from a year earlier, which was the slowest growth rate by that measure since late 2015.

One slightly wobbly quarter doesn’t detract from Google’s impressive track record of steady growth since its rough patch several years ago. Tech investors, however, are an anxious lot in these late days of US economic expansion and extra scrutiny of tech companies’ power.

Monday’s results—combined with some growth hiccups at Amazon, Apple and Facebook—showed the potential vulnerability of the US tech superstars’ potent combination of rapid growth and alluring profits. It is that combination that has powered US stock markets, and that is what investors have come to expect from the technology titans.

Shares of Alphabet sagged about 6% in after-market trading following the release of first-quarter results.
There didn’t seem to be obvious culprits, and the company doesn’t disclose enough granular information about its sprawling businesses to diagnose possible temporary problems. Alphabet talked Monday about the weakness of currencies in some of its largest markets, which weighs down the company’s reported revenue in dollars. Executives hinted at some changes to YouTube advertisements and the “timing” of advertising formats that weighed on revenue growth. And to be fair, most companies anywhere close to Alphabet’s more than $140 billion in annual revenue would be thrilled to grow at a rate that was a comedown for Alphabet.
Alphabet told investors three months ago that its rate of spending growth would moderate in 2019, and the company followed through in the first quarter. Excluding the impact of Alphabet’s latest fine from European regulators, Alphabet’s operating profit was better than expected, and its spending slowed on big capital projects such as computer data centres.

Investors have been nervous about Alphabet’s spending recently, while the company’s growth rate has held strong. Now the opposite is true, and company watchers would be forgiven for wishing the growth to come back.

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