Alphabet stock down 8% in biggest drop since 2012 amid advertising fears

Alphabet yesterday reported disappointing Q1 2019 earnings that led to the stock falling in after-hours trading and an over 8% drop Tuesday morning. The company missed revenue by about a billion dollars as ad revenue growth slowed amid worries that advertisers are moving to Facebook and Amazon.

Google’s ads business continues to be Alphabet’s primary moneymaker. At issue this quarter is disappointing advertising revenue growth of 15% versus 24% in Q1 2018 and 18% in Q1 2017. Despite Google’s efforts to diversify into enterprise software and cloud offerings, ad revenue still drives the bulk of profit every quarter. Under Alphabet, many ‘bets’ like Loon, Wing, and Waymo are beginning to get external investments or launch monetization efforts to contribute to the bottom line.

Historically, this has allowed Google to fund and expand into other product areas. Investors are worried that advertisers are shifting to Facebook for digital spending, while Google Search is losing its position as the destination that consumers first visit when looking for a product. Amazon poses a big threat as the site buyers will directly turn to.

Meanwhile, investors were also upset at the explanations provided by Alphabet CFO Ruth Porat during the earnings call. The “timing of product changes” was one given reason to explain the slowdown, though the company would not elaborate on what products or specific changes were responsible. Investors, according to CNBC, expected revenue of $37.33 billion compared to yesterday’s $36.34 billion.

As of Tuesday morning, Alphabet stock (GOOG) is currently down over 8% with the shade price approximately $100 lower than at the close of market yesterday. According to Bloomberg and Zerohedge, this decline is the largest since October 2012.

Within Google, the hardware business is facing its own troubles. As we reported yesterday, there was a Q1 drop in Pixel phone sales due to “pressures in the premium smartphone industry.” It comes as the CFO confirmed a hardware announcement on May 7th at I/O 2019, with Google widely expected to release a mid-range phone to turn-around Pixel sales.

Google did note “ongoing momentum” for Assistant devices, like the Home Hub and Home Mini. Later in the call, Sundar Pichai reiterated a commitment for Pixel, Home, and Nest going forward.

“We are still early in our hardware journey. And when I look ahead at the portfolio that we created across Pixel, Home, and Nest, I feel really good about the range of products that we have.”