Complex Made Simple

Who is beating Google at their own game?

It seems the undisputed king of search engines has found a worthy competitor following its Q1 2019 earnings call.

Amazon is giving Google a run for its money Google's revenue grew at its slowest rate since 2015 The search giant is being tight-lipped about the whole thing

The tables have turned. Someone is challenging Google at their own game (not THIS game) – and winning. 

The rival on the scene? Amazon. 

Ad revenue growth takes a break

Alphabet, Google’s parent company, released its earnings report for Q1 2019 on Monday, and the market has been through a whirlwind since. While in no way is the company in danger, its ad revenue and market share are being chipped away.

“Alphabet’s first-quarter revenue missed analysts’ estimates, sparking concern that advertisers are shifting some spending from Alphabet’s Google subsidiary to digital rivals,” Bloomberg said. 

“Google’s ad revenue — which makes up about 85% of its overall revenue — grew at its slowest rate in four years, rising 15.3% year-over-year (YoY) to reach $30.7 billion, per its Q1 2019 earnings,” Business Insider (BI) commented. 

“For comparison, Google’s ad revenue grew 24.4% YoY last quarter,” BI continued. 

On the other hand, “Amazon’s first-quarter sales in its “other” segment, which is mostly advertising, increased 34% to $2.72 billion, the online retailer said last week,” according to Bloomberg. “The company’s digital advertising franchise has grown into the third largest in the U.S., trailing only Google and Facebook, eMarketer estimates.”

As such, Amazon is increasingly eating into Google’s ad share.

According to BI, “Google’s share of the $44.2 billion US search ad market could slip to 71%, down from 78%, in 2019, due to the growth of Amazon search ads, per eMarketer estimates.”

Google is giving “evasive” answers

Investors have naturally been rattled. Google has long been the undisputed king of ad revenue when it comes to search. Now that this is being challenged, investors and other outsiders want to know what’s going on. 

The thing is, Google is giving unsatisfactory answers. 

“Analyst questions for more detail on the earnings call went unanswered,” Bloomberg reported. “Brian White from Monness Crespi Hardt, accused Google of following a ‘botched’ quarter with a call ‘littered with evasive commentary’ in a research note. ‘We found the call ‘a riddle…’ given the company’s inability to satisfactorily answer even the most basic of queries,’ White wrote.

“Alphabet execs attributed the slowdown to currency fluctuations and the timing of product changes, but they didn’t specify what those changes were,” BI said. 

Many are viewing Amazon’s rising ad revenue as the culprit behind Google’s woes, coupled with advertisers becoming more reluctant about advertising on YouTube. The platform has been mired by controversy following questionable content that has surfaced on the site as of late. Google has hired thousands of employees to ensure this content is removed from the platform. 

Alphabet’s Q1 2019 earnings report

Here’s what Alphabet reported compared to Wall Street’s expectations (according to CNBC):

-Earnings per share: $11.90 per share, ex-items, vs. $10.61 expected, per Refinitiv survey of analysts

-Revenue: $36.34 billion, vs. $37.33 billion expected, per Refinitiv survey

-Traffic acquisition costs: $6.86 billion, vs. $7.26 billion expected, according to FactSet

-Paid clicks on Google properties: +39%

-Cost-per-click on Google properties: -19%

“Google is seeing decelerating growth after consistently expanding at 20% or more in prior periods,” CNBC said. “Revenue increased 17%, down from growth of 28% a year earlier, and ad sales rose 15%, down from 24% a year ago.”

Graph: CNBC

Naturally, Alphabet stock (GOOGL) took a major hit. Stock value dropped 8.182% between Monday and Tuesday, shedding $106 in value down to $1190.14 (from $1296.20). The drop wiped more than $60 billion off Alphabet’s market cap, CNBC noted. 

As of this writing, GOOGL stock is valued at $1166.51, representing a 10% drop from its late Monday figure.