Shares of Alphabet (GOOG -1.10%) (GOOGL -1.23%) took a hit following the release of its first-quarter results late last month. The Street was disappointed in the Google parent company's top line, as 17% year-over-year revenue growth wasn't enough to meet expectations. In addition, slowing growth in Alphabet's "Google other" segment may have spooked some investors.
To get a better view of how Alphabet's underlying business is performing, here's a look at four key quotes from the online search giant's first-quarter earnings call, where management discussed its business with analysts.
Image source: Alphabet.
What's behind Alphabet's decelerating revenue?
There were several things behind Alphabet's decelerating revenue in the company's fourth quarter, Alphabet CFO Ruth Porat explained. First of all, there was a foreign exchange headwind this year -- and that was on top of a foreign exchange tailwind in the year-ago quarter. When looking at Alphabet's 19% year-over-year revenue growth on a constant currency basis, Porat pointed to a tough comparison in the year-ago quarter and the timing of product changes.
"[T]he other item is that timing of product changes in ads can impact year-on-year growth rates, and we make changes with the focus on the best interest of users and advertisers," Porat said. "Over the long term, we do not manage by quarter."
In other words, Porat wanted to drive home the point that the company isn't interested in maximizing near-term revenue if it means putting off a change to its ad product that will benefit users and advertisers. The product and experience come first.
Over the long haul, of course, the hope is that a better experience ultimately benefits Alphabet by resulting in more satisfied advertisers and users and -- eventually -- more revenue.
How the Super Bowl benefits YouTube
The Super Bowl's reputation for high-quality video advertisements is benefiting YouTube, as users are going to the streaming-video platform to watch these ads.
"In Q1, we again saw how YouTube is the go-to destination for watching Super Bowl ads before, during, and after the big game," said Google CEO Sundar Pichai. "This year, viewership of Super Bowl ads on YouTube during the game rose by nearly 60%."
Alphabet's three biggest catalysts
Investors don't have to guess which products and services are driving the most growth for Alphabet. Porat laid it out clearly in the company's earnings call, when discussing Alphabet's first-quarter revenue growth.
"Once again, our results were driven by ongoing strength in mobile search along with important contributions from YouTube, followed by cloud," the CFO said.
A big opportunity
Alphabet management is particularly bullish on the opportunity ahead for its Google properties, a segment that accounts for more than 70% of total revenue. The segment includes advertising revenue generated on all the company's own websites and products, like its Google search engine, Gmail, Google Maps, Google Play, and YouTube. Mobile search, in particular, has been a consistent driver for this business.
Fortunately for investors, there's significant room for further upside with Alphabet's Google properties, according to Porat.
"We remain confident about the sizable opportunity ahead to improve the advertiser end-user experience through our ongoing commitment to product innovation in particular by leveraging machine learning across our ads, products, and properties," she said when discussing Google properties.
Later in the call, Porat specifically called out mobile search as one area that could benefit greatly from investments in machine learning and product innovation.
