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Why Alphabet Stock Was Slammed Tuesday

By Daniel Sparks – Updated Apr 30, 2019 at 12:33PM

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A deceleration in the online search giant's revenue growth took the market by surprise.

What happened

Shares of Google parent company Alphabet (GOOG -0.44%) (GOOGL -0.55%) were hit hard Tuesday, falling as much as 8.7%. As of 11:20 a.m. EDT, the stock was down 8.5%.

The decline follows the online search giant's first-quarter results, which included sales that missed analysts' average forecast by about $1 billion.

Alphabet executives walking into Google headquarters

Image source: Alphabet.

So what

Alphabet reported first-quarter revenue and adjusted earnings per share of $36.34 billion and $11.90, respectively. On average, analysts were expecting revenue and adjusted earnings per share of $37.33 billion and $10.61.

While Alphabet's adjusted earnings per share for the period was notable, the rare revenue miss took the Street by surprise, especially since the miss was so substantial.

"In terms of our key revenue drivers, with respect to Sites revenues as we indicated last quarter, the timing of product changes in ads at times can have an impact on year-on-year growth rates," said Alphabet CFO Ruth Porat during the first-quarter earnings call, suggesting the timing of changes to its ad products may have had an adverse impact on the quarter's revenue growth rate. 

Now what

Management also noted during the call that when it comes to revenue growth, it will always prioritize the long-term interest of users and advertisers. Its efforts to make product changes by improving the advertiser and user experience, therefore, could lead to more lumpiness in revenue growth in the future. But if revenue growth decelerates meaningfully and consistently in the coming quarters, investors may need to revisit their growth expectations for the company.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

Stocks Mentioned

Alphabet Stock Quote
$100.44 (-0.55%) $0.55
Alphabet Stock Quote
$100.83 (-0.44%) $0.45

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