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Google – What Went Wrong After Achieving Strong Revenue Growth in 2018?

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Google’s (NASDAQ: GOOGL) parent company’s Alphabet shares sank after Google’s parent company reported  disappointing news that revenue that fell below analyst estimates for its first-quarter 2019. The drop wiped more than $60 billion off Alphabet’s market cap. So how did this happen?

The bad news is that ad sales growth is decelerating at Google after consistently expanding at 20% or more in prior periods. Profits also dropped in the first quarter, but largely due to a fine from the European Commission. Google had to pay €1.5bn (£1.3bn) after it was accused of abusing its market dominance for blocking rival online search advertisers between 2006 and 2016.

Google’s revenues were $36.2 billion, 17% increase from $25.7 billion. This 17% increase clearly slowing down from growth of 26% a year earlier, and even below the expansion rate of previous three months. In terms of dollar growth, results were led again by mobile search, with a strong contribution from YouTube, followed by desktop search. Ad sales rose 15%, down from 24% a year ago. Alphabet also said that the rate of growth in “paid clicks” decelerated, slowing to 39% growth compared to 59% at the beginning of 2018. The majority of the firm’s revenues (84.5%) came from Google’s ad business, which sells links, banners and commercials across its own websites and apps as well as those of their partners. Including the fine, Alphabet’s operating profit dropped to $6.6bn from a previous period’s $7.6bn. Excluding the fine, the company’s operating income rose 26% to $8.31 billion so this was a big blow to its bottom line. Total cash and marketable securities rose 4% to $113.5 billion.

A big chunk of Google’s costs in recent quarters was incurred to bolster the cloud business, , reflecting investments in data centers, servers and facilities. This is the company’s effort to keep the pace with Amazon Web Services (NASDAQ: AMZN) and Microsoft Azure (NASDAQ: MSFT). Headcount growth in Cloud was the biggest driver of the company’s increase in operating expenses.

When placed as CEO of Google Cloud group in November last year, Longtime Oracle executive Thomas Kurian was convinced that Google’s Cloud business will “accelerate the growth even faster.” Google is pleased with the momentum of Google Cloud Platform, with balanced growth of both new customers and expansion within existing customers driving revenue growth. Capital expenditures are expected to increase this year but at a meaningfully lower rate than in 2018.

Other revenues for Google were $5.4 billion, up 25% year-over-year, fueled by Cloud and Play and partially offset by Hardware. Google Cloud Platform remains one of the fastest growing businesses in Alphabet, with strong customer momentum that reflected in the demand for compute and data analytics products. Hardware results reflect lower sales of Pixel, as the industry is showing from pressures in the premium smartphone market and intensive marketing efforts.

There was a significant swing year over year in the impact of currency movements on Google’ results this quarter. These affect both revenues and operating income given the majority of Google expenses are in the U.S. Due to a stronger US dollar relative to other key currencies, Google expects a continued headwind to its revenues and operating income in the second quarter.

As for key revenue drivers, with respect to Sites Revenues, the timing of product changes in ads can have a big impact on growth rates. Google will continue to make changes with a focus on the long-term best interest of its users and advertisers. Its executives are determined to enhance the user experience through its ongoing commitment to product innovation, in particular by leveraging Machine Learning across its ads products and properties.

Google Opex first quarter results also show the company’s ongoing commitment to invest for the long-term. In R&D, Google continues to invest in technical talent for priority areas like Cloud, Search and Machine Learning. These expenses to pick up in the second quarter.

There’s tremendous momentum across the Android ecosystem and other computing platforms. In the first quarter, Google released the beta of Android Q, which brings added privacy protections and new tools for developers to engage users, and more. Android Go edition, an optimized version of Android tailored for smartphones with 1GB or less, delivers a powerful, fast and secure experience specifically optimized for entry-level smartphones. Today, roughly 70% of entry-level Android devices are now activating with Go. And in Google Play, first-time buyers grew by nearly 50% year over year. Google is very pleased with how these platforms are growing as a positive feedback for the experiences it has created for its users. The newest revolutionizing platform is Stadia which brings together the best of Google’s infrastructure and open ecosystem approach.

The company is seeing great momentum in Android Auto as well. At the Chicago Auto Show, the Japanese auto giant Toyota (NYSE:TM) announced that it will include Android Auto in their upcoming vehicles, starting in 2020. Toyota is opened for all those who share the same aspirations of a sustainable future that benefits society as a whole and is a company that has been healthy throughout all kinds of crisis. This means all of the top 10 car makers now support Android Auto. And Google’s three billion users help make it the world’s largest seller of internet ads, according to market research firm EMarketer so altogether so it seems Google has made its nest for what the future hold. Also, let’s not forget that Google is the world’s largest corporate buyer of renewable energy as the company is committed to continue growing with minimal impact on the environment.

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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