Alphabet Inc. (GOOG, Financial)(GOOGL, Financial), the parent company of Google, reported third-quarter earnings last Thursday. Shares nosedived after revenue missed analyst expectations.
The company, which is led by Sundar Pichai, posted revenue of $33.7 billion, up 21% from the year-ago quarter but below Wall Street's consensus estimates of $34.05 billion. Alphabet reported earnings of $13.06 per share, topping analysts’ estimates of $10.40.
As expected, the company’s advertising business was a major contributor to the top line, generating $27.01 billion after accounting for traffic acquisition costs, up from $21.97 billion in the year-ago quarter.
Moreover, the other segment, which includes the cloud-computing platform and hardware sales of Pixel phones and Home speakers, reported revenue of $4.64 billion, up from $3.59 billion a year ago. The other bets segment, which includes the Way self-driving project, reported $146 million in revenue and a $727 million operating loss.
Looking ahed, the street is expecting changes in the advertising landscape. Analysts fear Amazon (AMZN, Financial) will eat up Google’s advertising revenue as consumers shift to the e-commerce giant. A report from eMarketer projects American advertisers will spend about $4.61 billion on Amazon this year in the U.S. Coupled with competition, new business investments are not generating sufficient returns currently.
Alphabet is also expanding its base in India. It announced its intentions to launch a new shopping tab for its Indian users, which is a step in the right direction as the American company attempts to garner a higher share of the $38.5 billion market.
Google shopping is already offered in multiple countries, where the company has joined forces with retailers like Walmart (WMT, Financial) and Target (TGT, Financial). This space lets both online retailers and offline brick-and-mortar merchants showcase their catalogs. Moreover, sellers can expect higher engagement rates and better conversion owing to the higher user intent on Google.Â
Moreover, Alphabet is leveraging the growing demand for the cloud computing market. The company reported it's generating around $1 billion a year from the business currently.
From a valuation perspective, Alphabet seems to be well positioned with a forward price-earnings ratio of 22.57 as compared to the industry median of 25.77. Moreover, it has an operating margin of 24.48% compared to the industry median of 4.51% and a three-year revenue growth rate of 17.9% compared with the industry median of 10.3%.
Despite the recent dip, Alphabet’s pipeline looks rather interesting. With positive trends in the cloud segment and the company's venture into the Indian e-commerce market, the stock seems to be well positioned for growth.
Disclosure: I do not own any of the stocks mentioned.
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