Whatâs Going On Here?Alphabetâs profit may have fallen short of expectations late on Tuesday, but its stock still made the grade, initially rising 3%. What Does This Mean?Alphabetâs overall revenue, made up mostly of Googleâs advertising business, was a little higher than investors had forecast. Thatâs despite advertisers on its websites â which tend to be from âconsumer cyclicalâ sectors like travel, autos, and retail â having yanked much of their ad spending in March. Not that it was much of a surprise, mind you: customer spending in those industries ebbs and flows with the economyâs fortunes. So even though user engagement on platforms like YouTube likely increased thanks to a homebound audience, travel firms like Booking.com â which normally spends $4 billion a year with Google â have, for obvious reasons, paused ads altogether (tweet this). Alphabetâs own costs, however, arenât quite as flexible â meaning its quarterly profit came in lower than hoped. Why Should I Care?The bigger picture: You cut, we bleed.
Alphabet is Americaâs sixth-largest public company, and its decision to cut its marketing budget in response to coronavirus-strained revenues will have knock-on effects on the wider economy. Microchip-makers hoping for a boom ahead of the tech giantâs new smartphone launch later this year, for instance, might suffer. And sorry, chipmakers, but it gets worse: Appleâs reportedly delayed the manufacturing of its new flagship phone.
For markets: Looking for something long term.
Analysts expect Alphabetâs ad revenue to have accelerated by next year, once the global economy reopens and companies start vying for consumersâ attention again. Longer-term investors think Alphabetâs non-ad businesses like Google Cloud â as well as other ventures like Waymo, DeepMind, and Verily â might now come to the fore. Very little of the potential value of those segments is currently reflected in Alphabetâs share price, so if new investors decide to take advantage of that oversight by buying up Alphabetâs shares, existing investors could be in for a windfall. | 