Alphabet: Google stock drops after mixed results

  •   05/02/2020 - 23h44
  •   Adeline HARMANT

Alphabet, Google's parent company, has been headed by Sundar Pichai since December 2019. At the beginning of the year 2020, the new CEO is already facing a reaction from the stock exchange against his group. Indeed, Google's share price fell by more than 4.2% on February 3, 2019. This significant decrease is the consequence of the announcement of lower than expected 2019 results. The fall in share price has a strong symbolic impact, since Alphabet is no longer (temporarily?) part of the closed club of companies with a market value of at least $1 trillion.  

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Alphabet: Google stock drops after mixed results
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But why did the stock market operators massively sell Google shares?

Turnover is slightly above $46 million, which corresponds to an increase of 17% over one year. However, this result is lower than expected, a negative gap of around 1.75%. Similarly, operating income for 2019 was $9.3 million, compared with an expected $9.9 million. But not all indicators are red for Google. Indeed, earnings per share were much higher than forecast, at $15.35 instead of $12.74, a difference of more than 20%.

In addition, to reassure investors, the multinational has communicated on two flagship sectors, which should support the group's growth over the next few years: YouTube and Google Cloud. Thus, revenues from advertising and paid subscriptions (more than 20 million subscribers) on the famous video platform grew very strongly in 2019. Indeed, the increase in turnover over one year is 36%. It should be noted that this is the first time the firm has agreed to communicate on YouTube results.

As for the Cloud, Alphabet continues to grow and hopes to catch up with the two giants of the offshore computing sector, Amazon and Microsoft. In fact, Alphabet's sales in this sector jumped by more than 50%. Encouraging results from YouTube and Google Cloud allowed Sundar Pichai to defend his group, stressing that Alphabet has a long-term vision while the stock market is only looking at the short term. They also point out that the number of employees will rise sharply this year to support the growth of the American giant. These new recruits will be added to the additional workforce created by the acquisition at the end of 2019 of Fitbit, the global specialist in connected fitness equipment.

Despite the good performance of YouTube and Google Cloud, it should not be forgotten that the traditional Search business still accounts for 60% of Alphabet's parent company's overall turnover.