Google's Q3 revenue comes up shy of Wall Street's target and the stock is falling

Google CEO Sundar Pichai. (Justin Sullivan / Getty Images)
  • Google’s Q3 revenue missed Wall Street estimates overnight, and its shares fell 5% in after-hours trade.
  • Google CFO Ruth Porat said ad revenue growth was driven primarily by mobile search and Youtube.

Google’s net revenue jumped 22% in the third quarter driven by healthy performance in its mobile search business, but the results were below Wall Street expectations and the stock slid in after hours trading on Thursday.

Shares of Google-parent company Alphabet were down roughly 5% in extending trading, after finishing the regular trading session up more than 4% in anticipation of the results.

The internet company’s operating profit margin was squeezed by rising costs in the three months ended September 30, but a lower tax rate and a $1.4 billion boost in “other income” from equity investments helped Alphabet post a larger than expected net profit.

Here’s what Alphabet reported:

  • Q3 net revenue: $27.2 billion, up 22% year-on-year, but shy of the $27.33 billion expected by analysts.
  • Q3 EPS (GAAP): $13.06, compared to analyst expectations of $10.45.
  • Operating margin: 25%, down from 28% in the year ago quarter.
  • Traffic acquisition costs: 23% of advertising revenue, the same as in the year ago period.
  • Other Revenues (includes Cloud and Play businesses): $4.6 billion, up 29% year-over-year.
  • Employees: 94,372, an increase of more than 5,000 employees from its last report at the end of July.

During a conference call, Google CFO Ruth Porat said the company’s ad revenue growth in Q3 was “led by mobile search with a strong contribution from YouTube, followed by desktop search”.

She warned that traffic acquisition costs would continue to increase going forward as consumers increasingly shift from using its search engine on desktop computers to mobile devices.

Alphabet’s “Other Bets,” the various subsidiary companies focused on ambitious projects like self-driving cars and healthcare technology posted a widening operating loss of $727 million, compared to $650 million in the year ago period.

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