Alphabet shares decline on revenue miss; YouTube ad, cloud revenues finally revealed

Alphabet Inc. shares declined nearly 5% in extended trading after the company’s fourth-quarter revenue fell short of Wall Street estimates on Monday. But it was a change in revenue disclosure that got investors’ attention.

Google’s parent company rode its franchise business, search-engine advertising sales, to report revenue of $46.08 billion, vs. expectations of $46.94 billion from analysts polled by FactSet.

Alphabet’s GOOGL, +3.48%GOOG, +3.61% net income of $10.67 billion, or $15.35 per share, eclipsed FactSet estimates of $12.49 per share.

The earnings surprise was the decision by Alphabet to break out revenue for YouTube though it did not immediately explain its change in policy. “I’m really pleased with our continued progress in Search and in building two of our newer growth areas — YouTube, already at $15 billion in annual ad revenue, and Cloud, which is now on a $10 billion revenue run rate,” new Alphabet Chief Executive Sundar Pichai said in a statement.

In a conference call with analysts following the quarterly results, Pichai said, “We’ve added new revenue disclosures to give greater insight into our business.”

See also:Why Google finally disclosed YouTube revenue

YouTube revenue in 2019 was $15.15 billion, up 36% from 2018 and nearly twice that of 2017. Google Cloud sales were $8.9 billion for the year, surging 53% from 2018 and doubling its total in 2017. “We expect substantial opportunity in direct response and brand advertisers” for YouTube, Alphabet Chief Financial Officer Ruth Porat said in the conference call.

The search-engine powerhouse, whose market value topped $1 trillion last month but has since dropped below that mark, is one of four major tech companies under investigation by federal regulators for its business practices. The others are Apple Inc. AAPL, -0.27% , Facebook Inc. FB, +1.13% and Amazon.com Inc. AMZN, -0.23% .

See also:Google becomes third U.S. tech company worth $1 trillion

JMP Securities analyst Ron Josey told MarketWatch he expected an 18.5% year-over-year jump in Google’s core advertising business to $32 billion. (Google reported $31.9 billion in the fourth quarter.) He is also closely watching Google Cloud-related sales, which Pichai described as especially strong in landing multimillion-dollar contracts during the conference call. Pichai, who is also Google CEO, was promoted in December.

Alphabet shares have climbed 29.9% over the past 12 months, compared with a gain of 19.2% for the broader S&P 500 index SPX, +0.73% .