Alphabet’s money-making machine is slowing down

JOMO arrives on stage.
JOMO arrives on stage.
Image: Stephen Lam/Reuters
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Google’s unstoppable ad business might be under fire.

The stock price of parent-company Alphabet dropped as much as 7% in after-hours after it reported revenue of $33.7 billion for the third quarter of 2o18, missing analysts’ estimates of $34.4 billion. The stock bounced back to around a 3% decline as the results were further digested.

Earlier in the day, a New York Times story detailing years of sexual misconduct at Google seemed to have no impact on the company’s stock, as its price rose 5% during regular trading hours.

In a letter to Google employees, CEO Sundar Pichai wrote that the company had fired 48 employees without exit packages for sexual harassment in the last two years, 13 of those being senior managers and higher.

Alphabet’s reported revenue marks a slowdown for the company, with growth easing to 21% compared to 26% last quarter and 24% a year earlier.

As usual, the vast majority of Alphabet’s revenue comes from Google’s advertising business, but new products and services like Chromebooks, Pixel phones, and Google Cloud have become a new bright spot on the company’s top line. But despite that category’s growth, it’s still only about 14% of Google’s overall revenue, up from 9% in 2015.

Operating losses for Google’s other bets also grew to $727 million, up from $650 million during the same period last year.

Google’s ad business now faces growing competition from Amazon. The shift makes sense from a consumer standpoint: Amazon is where people go to find and buy things. Google’s market share in ad spend dollars is already expected to wane, with analysts estimating that it will capture 37% of the market in 2018, down from 41% in 2016. This increased pressure also comes from Facebook, which is still formidable despite the company’s earnings miss last quarter.