SECOND TAKE: FT'S LEX
THE LEX COLUMN: Alphabet punished for spelling out revenue details
The reports reveal a drop in quarterly numbers — and a possible advertising pickle
Alphabet has finally given in to shareholder demands for more financial disclosures. Look how it is rewarded. On Monday, Google’s parent company provided fourth-quarter revenue details for cloud services and YouTube for the first time. The shares promptly fell 4% in after-hours trading. There’s gratitude for you.
The explanation for the dip was total quarterly revenue of $46bn — slightly below expectations. Yet the company remains the first place most people go when they want to look something up online and has a vast digital advertising business with limited competition. The drivers behind its recent, albeit brief, $1-trillion market capitalisation have not changed. The question raised by Alphabet’s new disclosures is whether it will continue to depend mostly on advertising or whether there is another business in the portfolio that can drive future growth.
So far it is not clear there is. Cloud services is the second-biggest business, but Google Cloud Platform is lagging far behind industry leader Amazon and runner-up Microsoft. The business generated sales of $2.6bn for the past quarter — about a quarter of the size of Amazon’s AWS. “Other bets” look ropey too — in spite of Alphabet spending $26bn on research & development in 2019. The portfolio of self-driving car business Waymo and other ideas keeps sucking up money and producing little in return. Losses exceeded $2bn in the past quarter.
If Google has another revenue model waiting in the wings it is not saying. It has a subscription business with YouTube TV but with 2-million paying subscribers it is far from becoming the next Netflix.
The decision to break YouTube advertising out shows the size of the video platform but it also highlights the extent to which the rest of the advertising business is slowing. Total advertising revenue growth was 17% up on the previous year. In the same quarter the previous year it was up 20%. It is impossible to know why until Google breaks down advertising revenues for more of its products.
Alphabet’s new CEO, Sundar Pichai, should be applauded for his decision to increase the company’s financial transparency and encouraged to disclose additional details. The trouble with giving shareholders what they want is that they always want more. /London, February 4
© The Financial Times 2020
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