Alphabet spends more and more as it searches for the new Android: profits are falling

Alphabet, the parent company of Google, has published the financial results of the last quarter of the fiscal year 2019 (from July to September). The shares have suffered an immediate collapse of 4% despite the numbers showing a general growth in many respects. The reason is easy to discover. Profits by shares, or so-called EPS (earning per share, an indicator of the company's profitability) are 23% lower than expectations. The result is that the earnings per share are $ 10.12 instead of the expected $ 12.42. A substantial difference, especially from the point of view of the shareholders who evidently caused the immediate collapse in the stock market.

Reading the numbers, Alphabet is far from bad, totaling nearly $ 34 billion in revenue in the quarter from the advertising industry alone, which however continues to be the one that brings the bulk of the profit. However, total revenue for the quarter was $ 40.5 billion, better than analysts had expected. This achievement was driven by the growth of "other revenues", a category that includes Play Store, Google Cloud and hardware such as Pixel smartphones, which reported revenues of 6.42 billion dollars.

Alphabet's "bets" make a hole of almost a billion dollars

So why do profits fall? Because Google spends a lot. "As we always say, we manage our business – commented Ruth Porat, Chief Financial Officer of the company – in the long term and not on a quarterly basis. We remain very focused on the continuous improvement of the user experience over the long term".

The problem, then, are those that Alphabet calls "other bets" (Other Bets), where it hides a loss that, although falling, is close to a billion dollars. These are the numbers concerning Verily (company of the group that deals with the science of life, originally called Google Life Sciences) and Fiber, the experimental project for the construction of a fiber network. The operating loss of this sector drops from 989 million dollars in the previous quarter to the current 941 million. Still too many, obviously, for investors.

Probably Google's strategy is really long-term and the major expenses incurred in this period are all geared towards developing technologies and tools to dominate the digital market of the future even more. A clear demonstration of this is represented by a figure that few have given emphasis to, namely the increase of 20,000 employees in a year, which represent 22% more employees hired since September 30, 2018. The one-fifth increase in the workforce means that something is cooking, but it will certainly be something that the shareholders, responsible for the stock market crash, still do not they know.