Alphabet Earnings Beat Street, But Stock Sinks On Revenue Miss — Update

Sundar Pichai Google

UPDATED with details from the earnings call

Google parent Alphabet beat Wall Street’s earnings expectations in its third quarter, but fell short on revenue. That miss caused the company’s stock to drop more than 5% in after-hours trading.

Alphabet reported per-share earnings of $13.06, well above analysts’ consensus estimates of $10.40 per share. That compares to per-share earnings of $9.57 a year earlier.

Revenue for the third quarter reached $33.7 billion, up 21% from a year ago, but s shy of Wall Street’s forecasts of $34.05 billion.

This the first time Google Chief Executive Sundar Pichai has spoken with investors since reports that the company was developing a search engine, codenamed Dragonfly, that would comply with China’s strict censorship laws.

Pichai has defended the controversial decision in an appearance this month at the Wired 25 Summit, saying Google would open up more information to Chinese citizens. He said the decision weighed heavily on the company, as it balanced providing access to information with freedom of expression.

“But we also follow the rule of law in every country,” Pichai said.

Asked about the China market, Pichai said the world’s most populous country is a place Google cares “deeply about,” and has been investing in for years. It reintroduced its Translate mobile apps to China a couple of years ago, and Android phones are sold in the market (absent a majority of Google apps and services). But the executive avoided any mention of bringing search to the country’s 1.4 billion people.

“We are constantly looking for ways by which we can better serve Chinese uses,” Pichai said. “That’s where we are today.”

This quarter’s earnings also will reflect Google’s change in its licensing policies in Europe. The company now charges a license fee to phone manufacturers to pre-install Gmail, YouTube, Google Maps and Chrome on their devices. Up until now, Google offered its software free — though that ran afoul of European Union regulators, who hit the company with a $5 billion fine for anticompetitive behavior. Its Android operating system powers more than 80% of the world’s smartphones.

Google is appealing the decision. Investors likely be watching to see if that translates into fewer device-makers installing Google’s chrome and search apps.

Pichai told investors that Google is working to make the transition as easy as possible for both device-makers and users. And the effects of the new licensing policy would be felt as consumers replace their older devices.

“Our products are very popular with users across platforms,” Pichai said. “We’re focused on doing the right thing there.”

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