Why Alphabet Stock Fell after Its Q3 Earnings Report

Alphabet (GOOGL) stock fell more than 1.6% after-hours on Monday. The decline came after the company released its third-quarter financial results after the closing bell. Alphabet’s EPS missed the consensus estimate.

Alphabet’s Q3 earnings came up short

Alphabet reported an EPS of $10.12 for the third quarter—compared to analysts’ expectation of $12.42. The company generated revenues of $40.5 billion in the third quarter, which beat the consensus estimate at $40.3 billion.

Alphabet’s earnings miss came after higher expenses and continued losses in its “other bets.” During the third quarter, Alphabet’s expenses rose 25% YoY (year-over-year) and outpaced its revenue growth of 20%. The company continues to spend more on traffic acquisition and staff hiring, which increases its expenses. Also, continued losses in “other bets” businesses put pressure on Alphabet’s earnings. The company’s other bets brought in revenues of $155 million. However, other bets caused an operating loss of $941 million in the third quarter. The other bets loss widened from $727 million in a similar period last year.

Alphabet’s earnings took a hit in the third quarter due to a $1.5 billion loss tied to equity investments. The company didn’t disclose which particular equity investments had a negative impact in the third quarter. However, Alphabet owns equity stakes in companies like Uber Technologies (UBER), Lyft (LYFT), and Slack Technologies (WORK).

Uber, Lyft, and Slack all went public this year. Notably, the stocks have mainly struggled since the IPO. Uber stock has fallen 20% in 2019 as of Monday. Lyft and Slack stocks have fallen 43% and 44% in 2019, respectively, as of the same day.

Alphabet took fines in the third quarter

Alphabet’s third-quarter earnings miss came after the company’s regulatory fines. In September, Alphabet’s Google unit agreed to pay $1.0 billion to end a tax dispute with French authorities. In that same month, YouTube was fined $170 million by the FTC.

Alphabet is still the subject of several antitrust investigations that could also result in fines for the company.

Alphabet’s ads business continues to grow

Alphabet’s Google unit posted a 17% YoY increase in advertising sales to $33.9 billion in the third quarter. Google also made gains in its non-advertising arm, which includes the hardware and cloud businesses. The company’s non-advertising revenues increased 39% YoY to $6.4 billion in the third quarter.

However, Alphabet continues to rely on Google’s advertising business for its revenues and earnings. Advertising sales contributed 84% of the company’s total revenues in the third quarter.