At $26.01 billion, Alphabet has increased revenue 21% over the same period last year and comfortably surpassed the $25.64 billion prediction of investors. However, the figure was overshadowed by concerns about rising costs in some of Alphabet’s divisions.
In particular, growth in Google’s all-important search advertising business actually reversed during the second quarter of the year. As this business is so critical to Alphabet’s overall revenue, its decline has acted as a red flag to investors. The company is struggling to adjust its ad model to reflect how people now predominantly use search on mobile devices.
This shift has led to an increase in Google’s “traffic acquisition costs,” the effective amount the company has to pay to reach new users. While the number of paid clicks it sees is increasing, the money being paid by advertisers on each click has reduced significantly by 23 percent.
Analysts had expected to see a 15 percent fall as more users switch to mobile devices. As a consequence of the investor concerns, Alphabet’s stock price fell by over 2 percent today, even though analysts were overwhelmingly bullish following its results yesterday.
As collated by Business Insider, analysts variably described Alphabet as having “solid results,” “strong fundamentals” and good access to “the best secular trends within tech, including mobile search, YouTube, and enterprise cloud computing.” However, they warned that future revenue growth will be harder to come by as Google struggles to reach new users. The firms repeatedly warned that mobile monetisation and the shift to video will be critical to Google over the next few years.
The earnings call demonstrates the impact that performance on mobile devices has on modern tech companies. Google itself is one of the undisputed leaders in the mobile market. The limited screen space offered by smartphones has made it harder to monetise the platform though.
Whereas desktop websites offer large areas of whitespace to display ads in, Google has to make do without so many sponsored links and product listings when a user visits from a phone. This has led to a disparity that poses a unique challenge for established tech companies. While mobile devices are the most commonly used form of consumer tech, they’re also the hardest to make money from.
Despite being apprehensive about Alphabet’s future growth prospects, most analysts are still publishing price targets well above $1,000. Citi posted a $1,180 target, Goldman Sachs $1,100 and Barclays $1,060. The stock is currently trading down around 3 percent at $967.61.
